S&P Indices & CSE launch S&P Sri Lanka 20 Index, possible prelude to ETFs

Jul 1st, 2012 | By | Category: ETF and Index News

S&P Indices has announced the launch of the S&P Sri Lanka 20 Index (SPLK20LP), which has been jointly developed with the Colombo Stock Exchange (CSE). The index is designed to be representative of the Sri Lankan equity market, yet also be efficient to replicate, with possible application for ETFs and other index-tracking funds.

S&P Indices & CSE launch S&P Sri Lanka 20 Index, possible prelude to ETFs

Sri Lanka’s main economic sectors are tea export, tourism, apparel, textile, rice production and other agricultural products. Nuwara Eliya tea plantation pictured.

The index includes the largest 20 stocks, by total market capitalisation, listed on the CSE that meet minimum size, liquidity and financial viability thresholds.  The constituents are weighted by float-adjusted market capitalisation, subject to a single stock cap of 15%, which is employed to enhance portfolio diversification.

Alka Banerjee, Vice President, Global Equity & Strategy Indices at S&P Indices, commented: “The S&P Sri Lanka 20 Index was created to help both local and international investors gauge the performance of the Sri Lankan equity market. In recent years, there has been increased interest in Sri Lankan equities from both domestic and international investors, which has spurred demand for a Sri Lankan equity benchmark capable of supporting index-linked financial products.”

Krishan Balendra, Chairman of Colombo Stock Exchange commented: “The CSE has embarked on a focused transformation programme targeting issuers, investors and intermediaries. In the sequencing of the initiative, launching a co-branded index with S&P Indices was ranked for implementation in Q2 of 2012. I am confident that a credible and transparent index will positively impact the market.”

The S&P Sri Lanka 20 has been designed in accordance with international practices and standards. All stocks are classified according to the Global Industry Classification Standard (GICS), which was co-developed by S&P Indices and MCSI and is widely used by market participants throughout the world.

The index employs a transparent, rules-based methodology, adjusts for available float and employs inclusion thresholds necessary to enhance tradability. To be eligible for inclusion, a stock must have a minimum float-adjusted market capitalisation of 500 million Sri Lankan rupees (Rs), a six-month average daily value traded of Rs 1 million should have traded at least 10 days of each month for the three months prior to the rebalancing reference date, and a positive net income over the 12 months prior to the rebalancing reference date.

For investors looking to gain exposure to Sri Lanka via ETFs, current options are somewhat constrained. The Xetra-listed RBS Market Access MSCI Frontier Markets Index ETF (M9SY), which tracks the MSCI Frontier Markets Index, has some exposure to Sri Lanka via its two Sri Lankan holdings, John Keells Holdings, a conglomerate with activities in tea and rubber plantations, hotels, transport, food, banking and technology, and Commercial Bank of Ceylon, Sri Lanka’s largest private-sector bank.

John Keells Holdings accounts for more than 14% of the Sri Lankan stock market.

Investors may not have to wait long, though, for a pure-play Sri Lanka ETF as US-based provider Global X Funds has filed with the SEC to launch the Global X FTSE Sri Lanka ETF.

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