"The eligible investor looking at Sri Lanka's listed market today is a very tiny part of the global equity investor community," he told a forum of senior executives at the LBR-LBO Chief Financial Officers Forum in Colombo.
"He or she is a frontier specialist."
He said in a typical Asian emerging market fund about 10 percent may be allocated to frontier markets.
West said a frontier market fund would take a position of about million dollars in a fund, whereas in an emerging market fund it was about 10 million dollars. In a global fund the position would be larger.
West said foreign funds would not want to hold more than 9.9 percent of a company because owners of the fund would want board representation and if something went wrong the fund managers could be sued.
"He does not want to own more than three days worth of trades," West said. "So you work it all out and Holy Cow you can’t buy a lot of companies."
Lloyd Fisher, another emerging markets investor said Sri Lanka only had a few companies with over a billion US dollars in market cap, though a few had over 500 million US dollars.
Foreign investors did not want to buy into companies whose stock moved up sharply the moment they started to take a position, he said.
They also wanted liquidity to exit when they wanted. Very few companies in Sri Lanka fit the bill he said. Fisher said he had been investing in Sri Lanka for about a year.
"Foreign investors look for corporate governance, transparency, clear and understandable regulations," he said. "It sound clichés it but it is not difficult to achieve."
They said conditions in Malaysia in the early 1990s and Singapore in the 1980s were somewhat similar to Sri Lanka.
Fisher said investors looked at transaction costs, including brokerage, custodial fees, and foreign exchange conversion costs.
West said frontier market investors had to be patient, and could not do quick trades because transactions costs could be up to 4 percent in a frontier market compared to half that in a more advanced market.
In Sri Lanka's last market boom, fired by low interest rates and margin credit many foreign investors made the right call and exited. They are now coming back.West said when he first went to Malaysia there were hardly any foreigner and it was a 'fly-over' territory. He said Sri Lanka was somewhat in similar.
"In a year or two from now you've got to land here," he said. "And guess what? It is a cleaner place. A safer place, the quality of life is higher. People are smart."
Other analysts however have said that Malaysia and Singapore have had the basics right including good monetary, fiscal policy and rule of law. In Sri Lanka however though a 30-year war ended concerns are rising and nationalism is on the rise.
But West said believed Sri Lanka could make it.
"Today people who come here are on the way to Dhaka, to Karachi. That is the frontier market routine," he said.
"We want to be in the route where you go to Singapore for a couple days, go you go KL. Then you come here, and finish your trip in Mumbai and go back to London and New York."
"That is where we want to be, and that is where we can be."