📈 SL Equities Now a 'Top Pick' for Foreign Frontier Fund: Stability & Undervaluation Key

AFC Asia Frontier Fund (AFC AFF) Co-Fund Manager Ruchir Desai has given an upbeat assessment, stating Sri Lanka is one of the Fund's top country picks, entering its most promising phase in a decade. • Core Drivers: The recovery is built on political and macroeconomic stability, which are critical prerequisites for sustained investor interest. • Fund Allocation: AFC AFF increased exposure soon after November 2022 (the 'crisis bottom') and Sri Lanka is now the Fund's second-largest country allocation. • Valuations: Equities remain significantly undervalued vs. fundamentals and regional peers. The broader market trades at ~11x earnings (P/E), below the 14-16x P/E seen pre-2018. • Sector Strength: Company fundamentals have returned to pre-crisis strength, showing robust earnings growth across banking, consumer, and industrial sectors. Private banks are benefitting directly from improved credit growth. • Valuation Gap: E.g., a leading SL bank trades at ~1x book value, while a comparable regional bank trades at nearly 2.5x, despite SL banks showing stronger earnings momentum. • Structural Strengths: Highlighting strong corporate governance, transparency, and a resilient pool of well-run companies. Untapped sectors include logistics and tourism. • Foreign Flows: Although currently low, foreign interest is expected to return by 2026 or 2027 if stability persists. Desai stressed that the platform is set for stable growth, but the country must "not to drop the ball" by maintaining reforms. 🤞