Sri Lanka’s Colombo Stock Exchange has been one of the top performers in the world this year. Since civil war ended in 2009, Sri Lanka has been on a rapid road to recovery, with the All Shares Index up over 106% since January 2010. With the Index up another 26% this year in local currency terms, we took a look at how to invest in Sri Lanka’s stock exchange.
Colombo Stock Exchange (CSE) Snapshot:
In operation since: 1982
Market hours: 09:30 to 14:30, Monday to Friday
Market Capitalization (as of 20 Dec 2014): 2.9 trillion LKR ($22.2 billion USD)
Listed companies (as of 20 Dec 2014): 293
Taxes: No capital gains tax for now, 10% withholding tax on dividends
Main Index: All Share Price Index, a market cap weighted index of all shares on the exchange
Secondary Index: S&P SL20 Index, an index of the twenty largest stocks by market cap on the exchange
Restrictions for Foreigners:
Non-Resident Foreigners are currently allowed to invest in Sri Lanka’s financial markets without many restrictions. Foreigners can own up to 100% of a listed company without prior approval, one of the most liberal policies we’ve seen so far. About 10 industries are exempted but this should not be a major issue for most retail investors.
The CSE provides a handy file on what foreign investors need to do here, but we will go through the steps below since some parts are not clear.
How to Invest in Sri Lanka’s Stock Market:
Step 1: Open a Securities Investment Account (SIA)
First, you must open a Securities Investment Account (SIA) with an authorized custodian bank. This account will allow you to send and take out money from Sri Lanka. Opening a SIA will allow you to transfer funds to trade both equities and debt. This must be done with one of 16 custodian banks in Sri Lanka, but most people will probably go with one of the large international banks.
Citibank, Deutsche Bank, HSBC, and Standard Chartered all have an onshore presence in Sri Lanka and can be used to open a SIA.
You can find a full list with contact information here.
Update: Unfortunately, many of these international banks have begun to close down this aspect of their business due to money laundering restrictions. However, you can still open an account with a local bank with the assistance of a stock brokerage company, making Step 2 even more important.
Step 2: Find a Stock Brokerage Company
Some stock brokerage companies will help guide you through the process of opening a SIA, but it is important to note that these brokerages are not custodian banks so do not control the SIA themselves. While the SIA is needed to fund your investment account, you need to open a Central Depository Systems (CDS) account in order to actually trade securities on the Colombo Stock Exchange.
You can open a CDS account through an authorized brokerage firm in Sri Lanka. According to this list from the CDS, there are 28 main stock brokerages to choose from.
Many of the brokerages look very modern from a frontier market standpoint, and offer online trading among other features. We have not tried all of them, but we would suggest starting your search at these firms and picking the one that is most responsive to you and your needs. We would start your search with these two firms:
- John Keells Stock Brokers
- Lanka Securities
Step 3: Open a CDS Account
To open a CDS account to be authorized by local authorities to trade on the local exchange, non-resident foreigners need to submit 6 pieces of information:
- Copy of passport
- CDS Form 1
- CDS Form 1(A)
- Proof of residency document
- SIA details with proof
- Power of attorney for your brokerage
Sri Lanka ranks in the middle of our Investment Safety Rankings alongside many other larger emerging market countries, a solid ranking among its fellow frontier markets. It should take about 2-4 weeks for everything to process, and after that you should be on your way.