The Current Status ofThe Current Status of Capital Markets of Sri Lanka

Ravi Abeysuriya, CFADirector / CEOCandor Group

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CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of Candor is strictly prohibited

Role of Financial Markets

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Financial market snapshot

Other FinacialInstitutions

SLC0.6%

Other0.4%

3.7%

Central Bank12.2%

Rural Banks &Other, 0.9%

LFC6.5%LSB9 0%

UnitTrusts1.1%

PrimaryDealers

Deposit TakingInstitutions

65 3%ContractualSavings

9.0%Dealers1.6%

Other Financial Institutions

Other Provident

12 TrillionLKR as of

65.3%SavingsInstitutions

18.8%LCB48.9%

InsuranceCompanies

3 4%

Other ProvidentFunds, 1.4%

ETF1.7%

End 2014

3.4%

EPF12.3% Glossary

SLC – Specialized Leasing CoEPF – Employees Provided Fund

LFC – Licensed Finance Co.LSB – Licensed Specialized Banks

Deposit Taking Institutions

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Contractual Savings Institutions

p yETF – Employees Trust Fund

pLCB – Licensed Commercial Banks

Source: Financial System Stability Report 2014, CBSL

Capital Market snapshot

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Capital Market snapshot

Valuations Equity Debt

Year ended 2014

Valuations Equity DebtEquity Market Capitalization LKR 3,105 Bn LKR 230 Bn

Market Capitalization as a % of GDP 31.7% 2.4%

Capital Raised in 2014 LKR 2.7 Bn LKR 54.2 Bn

Market P/E (Times) 19.66

Market P/B (Times) 2.20

Dividend Yield (%) 2.09

Market Turnover Equity DebtTurnover LKR 341Bn LKR 7 Bn

Foreign Investor Contribution to Total Market Turnover 27.6%

Local Company Contribution to Total Market Turnover 34.7%

Local Individual Contribution to Total Market Turnover 37.7%

IndicesCurrent Change MTD Change YTDCurrent Change MTD Change YTD

All Share Price Index (as at 30/09/2015) 7050.87 -3.35% -3.39%

S&P Sri Lanka 20 Index (as at 30/09/2015) 3826.16 -4.52% -6.43%

Liquidity

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q yAverage Daily Turnover LKR 1.4 Bn

Free Float 17.39%

Benchmark index movement over 26 years

Source: Bloomberg

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Source: Bloomberg

Market Capitalization continues to growLKR Bn

3000

3500

LKR.Bn

2500

1500

2000

500

1000

0

500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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MKT CAP

Capital market performances in 2014

8000

7500

8000 ASPI gained 22.30% in 2014

7000

6000

6500

5500

6000

50002-Jan-14 2-Mar-14 2-May-14 2-Jul-14 2-Sep-14 2-Nov-14

ASPI

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ASPI

CSE poised with the potential to grow further

Sri Lanka

Pakistan

Japan

Vietnam

Thailand

India

p

South Korea

Thailand

0 50 100 150 200 250

Singapore

Malaysia

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0 50 100 150 200 250

MKT CAP % GDP

CSEALL vs. Global indices: June 2009 - March 2015400%

350%

400%

250%

300%

CSEALL

200%

DJI

FTSE 100

Straits Times

MSCI Emerging

S&P 500

100%

150%S&P 500

Hang Seng

MSCI World

0%

50%

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0%

Jun-

09

Aug-

09

Oct

-09

Dec

-09

Feb-

10Ap

r-10

Jun-

10

Aug-

10

Oct

-10

Dec

-10

Feb-

11Ap

r-11

Jun-

11

Aug-

11

Oct

-11

Dec

-11

Feb-

12Ap

r-12

Jun-

12

Aug-

12

Oct

-12

Dec

-12

Feb-

13Ap

r-13

Jun-

13

Aug-

13

Oct

-13

Dec

-13

Feb-

14Ap

r-14

Jun-

14

Aug-

14

Oct

-14

Dec

-14

Feb-

15

Source: Bloomberg

ASPI vs. Other Regional Markets – 5 yr Return & Volatility

35

30

%

20

25

15

5

10

0ASPI  MSCI Emerging  Hang Seng  S&P BSE 500 Index  FTSE Malaysia  Jakarta Composite 

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5YR Annualized Return Standard DeviationSource: Bloomberg

Domestic Investor Participation Rate in the Sri Lankan Stock Market is One of the Lowest

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Source: Investor Protection, Equity Returns, and Financial Globalization, JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS

The Industry has lost Investor Trust

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We Must Restore “Trust” in our Capital Market

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Factors Contributing to Lack of Trust

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The Cost of Failure of Trust - Miss out on the “The Power of investing”

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How Investors miss out on the Power of InvestingReal Stock Market Returns vs. Real Savings Account Return

40,000

45,000 42,679 Real Stock Mkt. ReturnReal Savings A/c Return

30,000

35,000 34,049

29,730

36,614

30,985

35,421

20 000

25,000

30,000

18 569

22,023

15,000

20,000

10,000

15,445

18,569

10,625

5,000

10,000 8,119

2,379

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-

1985

1986

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1998

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2000

2001

2002

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2004

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2005

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2009

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2010

2011

2012

2013

2014

2015

Unit Trusts/Mutual Funds asset allocation

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Source: Fitch Ratings, ICL, Unit Trust Sri Lanka

Pension fund industry asset allocations

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Source: Fitch Ratings, JB Securities, CBSL Annual Report

High Quality Investment Advice through Unit Trust Funds & Stock Broking

O

Investors lost in the stock marketInvestors lost in the stock market

• We believe in winning the trust and confidence of our customers by giving honest advise with client’s interest at

Oursolution:

heart to chart a course for their financial future

Investors were not advised ‘when’ to sell h i k

Investors were not advised ‘when’ to sell h i k

• We will advise you what to buy and more importantly what to sell and when, to minimize your losses before they buildtheir stockstheir stocks

Poor stock selection Poor stock selection

to sell and when, to minimize your losses before they build up

• Our recommendation framework brings together our bottom-up and top-down views

resulted in poor portfoliosresulted in poor portfolios

p p• We rate each company against 18 specific variables, split

into three key categories: 1) Fundamental, 2) Technicals and 3) Subjective assessment of soft fundamentals (Qualitative criteria)(Q )

No strategy to protect investments during a crisis

No strategy to protect investments during a crisis

• Our investment advise is offered by a dedicated team of qualified and experienced investment advisors

• All our staff are bound by internationally recognized CFA I tit t d f thi d t d d f f i l

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Institute code of ethics and standards of professional conduct

Why we should invest in yEquities ?

Pasindu PereraHead of ResearchCandor Equities

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Sri Lanka’s long term fundamentals are strong

3.00 

3.50 

70

80

2.00 

2.50 

50

60

1.00 

1.50 

20

30

40

Be a part of this

‐

0.50 

0

10

20

6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4

pgrowth story

12/1/200

3/1/20

0

6/1/20

0

9/1/20

0

12/1/200

3/1/20

0

6/1/20

0

9/1/20

0

12/1/200

3/1/20

0

6/1/20

0

9/1/20

0

12/1/200

3/1/20

1

6/1/20

1

9/1/20

1

12/1/201

3/1/20

1

6/1/20

1

9/1/20

1

12/1/201

3/1/20

1

6/1/20

1

9/1/20

1

12/1/201

3/1/20

1

6/1/20

1

9/1/20

1

12/1/201

3/1/20

1

6/1/20

1

9/1/20

1

12/1/201

GDP (USD Bn) Market Cap (LKR Tr)

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GDP (USD Bn) Market Cap (LKR Tr)

Historically Equity is the highest performing asset class

115,315

127,423 130,000

ASPI Fixed Deposit ,

106,089

98,663 103,596

90,000

110,000 ASPI Fixed Deposit

Gold Inflation

Land Savings A/c

70,000

90,000

47,655 44,319

58,834

50,000

14 20318,464

26,219

33,560

26,148

30,000

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10,000 10,842 14,203

10,000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Importance of Risk & Reward trade-off

Maximize Upside Reward

Minimize downside Risk

Opportunity to maximize equity return while minimizing your investment risk

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Positive Trends in CSE

50.00%

Foreign participation remained healthy

40.00%

20.00%

30.00%

10.00%

0.00%2011 2012 2013 2014

Foreign participation as a % of total turnover Linear (Foreign participation as a % of total turnover)

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Positive Trends in CSE

Market Liquidity gradually improves

1 20%

q y g y p

0.03%

0.03%

0.04%

0.04%

0 60%

0.80%

1.00%

1.20%

0.01%

0.01%

0.02%

0.02%

0 00%

0.20%

0.40%

0.60%

0.00%2012 2013 2014

Average Market Liquidity (Daily)

0.00%2012 2013 2014

Avergae Market Liquidity (Monthly)

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Positive Trends in CSE

Weak correlation with other global markets

Index ASPI Description

MXWO Index 0.2696 Positive- Weak

MXMY Index 0.2764 Positive- Weak

FSSTI Index 0.3372 Positive- Weak

MXEF Index 0.2848 Positive- Weak

SPX Index 0.2328 Positive- Weak

DJI Index 0 1807 Positive WeakDJI Index 0.1807 Positive- Weak

HSI Index 0.2765 Positive- Weak

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Focus on long term value creationJKH TJLJKH

+28.11% +52.47%

HHL DIALHHL DIAL

+35.33% +24.10%

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Be smart to make profits through short-term cycles

LIOC

+45 00%+45.00%

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What is the most important element to identify these market trends?

• Timely

• Quality

• Reliable

O OINFORMATION

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What CANDOR offers to you

Page 31

Candor Investment Research

We focus on “Getting our calls

ight”

We focus on “Getting our calls

ight”right”right”

The best way to make money in any market is to buy low and sell

The best way to make money in any market is to buy low and sell

Our ratings identify stocks that we believe

will outperform or underperform the

Our ratings identify stocks that we believe

will outperform or underperform the

World Class Research

World Class Research

s to buy o a d sehigh.

s to buy o a d sehigh.

u de pe o t emarket over the next

12 months

u de pe o t emarket over the next

12 months

We take a value-investing approach

from a buy side perspective.

We take a value-investing approach

from a buy side perspective.

Maintain close contact with the companies in our coverage through frequent visits and

d l h

Maintain close contact with the companies in our coverage through frequent visits and

d l hWe look at the key

drivers of stock performance when

picking our coverage universe

We look at the key drivers of stock

performance when picking our

coverage universe

good relationships.good relationships.

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coverage universe.coverage universe.

Famous Quotes

"K h t d k h "Know what you own, and know why you own it."

Peter Lynch

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Famous Quotes

“ I Buy Shares with the assumption that the Market will close next day for five years”Market will close next day for five years

Warren Buffet

Page 34

Famous Quotes

“If a Business does well, the stock eventually follows” y

Warren Buffet

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Famous Quotes

“Price is what you pay, Value is what you get ” y g

Warren Buffet

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