The terror attack on Sri Lanka on 21 April was probably the worst thing that could have happened to the emerging economy from a foreign investor’s perspective, according to Tundra Fonder's Chief Investment Officer Mattias Martinsson. "Foreign investors were increasingly lured to the equity market because of attractive valuations," he explains. "Prior to the terrorist attack, the equity market as a whole had experienced five years of poor performance resulting in valuations becoming attractive relative to its peer group."
Indeed, the MSCI Sri Lanka IMI index has been a poor investment opportunity in the past five years, generating a negative annual return of 7.22 percent measured in USD. To compare, MSCI Frontier Markets in general have yielded a negative return of just 0.14 percent. Unlike most other indexes, especially those of developed markets, the Sri Lankan index only involves 12 companies. Nevertheless, performance divergence meant that the price to earnings ratio ending April 2009 was 9.84 for Sri Lanka, against 12.82 for the broad index.
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