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Two-thirds of the 280 plus listed companies at the Colombo Stock Exchange are trading below their book value. That bunch will include many troubled firms and ones hardest hit by the current economic downturn. But value investing has been a damned strategy in Sri Lanka for much longer. Despite a long history of stock trading Sri Lanka’s listed equity market was opened to foreign investors in 1991. Only the real faithful, could have borne the discomfort of holding on to shares when fixed income offered high, risk-free rates at times, and real-estate offered inflation hedged security. Stock prices vary with investors moods but value, the theory suggests, is lasting. Value is anchored on a company’s assets. But in Sri Lanka, this value has rarely come good. The stock market here rises for two years and then decline slowly during the next five years. Since the opening to foreign investors in 1991, that pattern has been evident. Asset heavy firms, the types favoured by value investors, suffer significantly during economic downturns when those assets lie idle. For a contrarian investor, value stocks yet may reveal a bargain. Our September cover story asks this question and ventures some answers.

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