War fears batter investor confidence in Sri Lanka

COLOMBO, May 16, 2006 (AFP) – Fears Sri Lanka could return to civil war have punched a hole in investor confidence and wiped millions of dollars off the value of local shares, analysts said Tuesday The tiny Colombo Stock Exchange has shed nearly 53 billion rupees (5.3 million dollars) of its value since the crisis deepened last month, official figures showed.

The benchmark ASI index has slumped by 7.4 percent since April 7 when violence began spiking as domestic and foreign investors sold out rather than risk staying.

“The spate of violence has shaken foreign (investor) confidence levels,” said Vajira Kulatilake, chief executive of NDB Investment Bank.

“Once they slip into their shell they take time to come out. It’s hard to shake off that negative perception,” Kulatilake said.

In April, international ratings agencies Fitch and Standard and Poor’s downgraded the island’s credit outlook to negative from stable, citing the fears of a slide back into war.

The conflict between the majority Sinhalese and minority Tamils has claimed over 60,000 lives since 1972 but a truce was brokered in February 2002.

“A resumption of full-scale hostilities could have negative implications for