ACCA members Chanakya Dissanayake and Danushka Samarasinghe work in two very different capital markets, but their core challenge is the same – delivering growth in fickle markets. They are also far out of their comfort zones as professional accountants, delivering better results for their clients and firms. For Dissanayake, Director/Country Head of Copal Amba Sri Lanka, a research and analytics firm serving international investment banks and fund managers, the challenges are global in scale. Global capital markets are on edge over concerns about China, a global oil glut and a struggling EU block. On the other hand, Samarasinghe, COO/Head of Research at Softlogic Stockbrokers, operates in an illiquid domestic market where the Colombo Stock Exchange is recovering from a slump as listed companies grapple with a policy environment in constant flux.
[pullquote]“The market is evolving. With a few large cap stocks, we cannot expect the market to be hugely appreciative of research. When the market deepens with more equity and debt listings, there will be more demand for research here.”
-Chanakya Dissanayake[/pullquote]
“The global investment banking industry that we serve with our research has changed significantly since the 2008 global financial crisis. Some investment banks that earned 17-20% return on equity are struggling to earn even half of that now because of restrictions on propriety trading activities, higher capital requirements and regulatory compliance costs on both sides of the Atlantic,” Dissanayake, who manages Copal Amba’s delivery centers in Sri Lanka and China, says.
He has several roles to play at Copal Amba. Dissanayake keeps his team, many of them ACCA-qualified financial professionals and ACCA prizewinners, constantly on their toes following factors that move and shake global capital markets, and providing investment banks with insight and analytics on economic, market and corporate data. He must keep his team abreast with ever-tightening regulatory environments in the US, EU and other parts of the world. He works closely with the Sri Lankan university system to make sure Copal Amba has a steady flow of competent and talented financial analysts needed to grow its global investment research business. He leads nearly 300 investment research professionals in Colombo and a hundred more in Beijing.
Dissanayake has another equally important role that goes beyond financial reports and into the more exciting realm of technology. Startups offering online financial services, called fintechs, are increasingly challenging traditional banking and portfolio management.
Fintechs have taken on a significant share of assets under management of traditional portfolio managers. They are robotic advisors providing algorithm-driven investment and portfolio advisory services, and include e-commerce players like Alibaba, raising huge money market funds over significantly shorter periods of time. “Wherever we look, there is tech disruption,” says Dissanayake, who monitors these developments so Copal Amba can develop its own solutions to rival fintechs.
“We are constantly adapting to remain relevant to our customers,” he says. In a volatile global economy, Dissanayake says investors value good quality research that give deep insights about companies, industries and economies. Research is so important that European regulators are zooming in on investment research firms themselves and want to regulate how research is priced.
In Sri Lanka, however, stockbrokers provide free investment research covering Colombo Stock Exchangelisted companies to their clients and are often taken for granted. “The market is evolving. With a few large cap stocks, we cannot expect the market to be hugely appreciative of research. When the market deepens with more equity and debt listings, there will be more demand for research here,” Dissanayake says.
[pullquote]“The size of the market and liquidity levels are not strong enough to demand payment for research. Our focus is on getting more trades, so research is bundled into our core service and offered for free.”
-Danushka Samarasinghe[/pullquote]
Danushka Samarasinghe, who heads the research team at Softlogic Stockbrokers and is the president of ACCA Sri Lanka, concurs with this
view. “The size of the market and liquidity levels are not strong enough to demand payment for research. Our focus is on getting more trades, so research is bundled into our core service and offered for free,” he says.
With less than 30 stocks with enough liquidity dominating trade at the Colombo Stock Exchange, generating transaction fee-based revenue, the bread and butter of stockbrokers, is challenging. “Opportunities for investors are rather imited,” Samarasinghe says. Making things worse, policy uncertainty in recent months has resulted in lackluster earnings growth, and local investors are relatively inactive. The only option is turning to global investors who are also having a rough year so far, but this is not stopping Samarasinghe who is also the chief operating officer of the firm.
His strategy is focusing on high-net-worth individuals and institutional investors from overseas. He travels often to global financial centers looking for new clients. “The strategy is working for us. The bulk of equity trading volumes Softlogic Stockbrokers generates is foreign, so our earnings are decent given the downturn in the market here. But we will face problems if the market does not attract new listings,” he says.
The purpose of an equity or debt market is to give companies access to capital, but Samarasinghe believes there are several factors deterring companies from listing. “For one, in Sri Lanka, a listing is too often viewed as a prestige enhancer rather than a vehicle to raise capital. Second, many families are not comfortable with the disclosure requirements a listing entails. Third, with interest rates still relatively lower, companies prefer bank borrowings,” he says.
Along with new listings, Sri Lanka also needs to broaden its local investor base. Without both these, the CSE will be limited in delivering wealth and achieving sustainable growth. “Developed markets are becoming more protective of their domiciled investors, making it costly for them to invest overseas, so we can’t always focus on attracting foreign investors. We need to incentivise new listings and local investments in the stock exchange,” Samarasinghe says.
[pullquote]“Wherever we look, there is tech disruption. We are constantly adapting to remain relevant to our customers.”
-Chanakya Dissanayake[/pullquote]
Building institutional capacity is another challenge. “Copying the regulations and practices of other markets may not always be the best solution. For example, we should not try to squeeze brokerage charges or exchange fees because income generation is important to sustain the industry. Developed markets have the scale to support lower fee structures. Consolidation among the brokering industry will be necessary to move beyond this survival phase,” he says.
Another challenge facing the capital markets industry is brain drain. “Around 65% of Sri Lankan ACCA members are overseas, contributing to other economies. They need to see new opportunities here and the job market must expand. I think Sri Lanka will see this change taking place soon,” Samarasinghe says.