Risk Committee Update: June 2026

Key Highlights

• Foreign investment activity remains overwhelmingly concentrated in the A-Share and China Interbank Bond Market (CIBM) segments, with the B-Share market continuing its long-term decline. International providers continue to offer greater transparency and more readily verifiable information than many domestic institutions, creating challenges for investor due diligence and risk assessment.
• Geopolitical developments and regulatory changes continue to influence the risk landscape and should remain a key focus for investors and market participants.
• Sri Lanka continues its gradual recovery following the IMF-supported restructuring programme, although economic and fiscal challenges remain. The successful implementation of T+2 settlement and planned market infrastructure enhancements demonstrate ongoing efforts to modernise the market.
• Operational inefficiencies persist, including manual account opening processes and the final stages of dematerialisation. Despite improving conditions, low market liquidity and limited foreign investor participation continue to present challenges for international investors.

China Update

As part of our recent Risk Committee discussions, we reviewed developments in the Chinese capital markets and the implications for foreign investors and market participants.

China remains one of the world's largest and most strategically important capital markets, offering multiple access routes for international investors. Foreign participation is primarily concentrated in two key markets: the A-share market (equities) and the China Interbank Bond Market (CIBM) (fixed income). These markets account for the overwhelming majority of foreign investment activity, while the historical B-share market continues to decline in relevance as market access restrictions have gradually eased.

Investors can access China's domestic markets through several channels, including the Qualified Foreign Investor (QFI) regime and the Hong Kong Connect programmes, each offering different operational, regulatory, and custody considerations.

A key observation from our review was the difference in transparency between international service providers operating in China and domestic Chinese institutions. While international providers generally offer a higher level of publicly available and independently verifiable information, transparency remains more limited among many domestic institutions, creating additional challenges for due diligence and risk assessment.

The Committee also noted that settlement risk remains an important consideration for foreign investors, particularly given the market's unique operating model, trading practices and infrastructure arrangements. In addition, ongoing geopolitical tensions and the evolving regulatory landscape continue to require close monitoring, as they may influence market access, investment flows and the broader risk environment.

As China's markets continue to evolve and attract global capital, investors should remain focused not only on market opportunities but also on operational resilience, transparency, settlement efficiency and geopolitical developments when assessing local market infrastructures and service providers to domestic banks to ensure their risk profiles remain aligned with previous institutional standards.

Sri Lanka Update

As part of our recent Risk Committee discussions, we reviewed developments in Sri Lanka following an on-site market visit.

Sri Lanka's capital market remains relatively small, with limited levels of foreign investment compared to other emerging and frontier markets. However, there are signs of gradual stabilisation following the economic challenges of recent years, including the IMF-supported recovery programme and sovereign debt restructuring efforts.

The Committee noted that the market infrastructure continues to evolve. The successful implementation of T+2 settlement in 2024 represented an important milestone, while further modernisation initiatives are planned, including the introduction of a new core trading platform by the Colombo Stock Exchange (CSE) and the development of electronic IPO and derivatives capabilities in the coming years.

From an operational perspective, some challenges remain. Account opening processes continue to be largely manual and can take several weeks to complete, while the final stages of market dematerialisation have proven difficult to achieve. These factors may continue to impact operational efficiency and investor onboarding.

The Committee also discussed the broader economic environment. While conditions have improved since the height of the crisis, investors continue to monitor inflation, fiscal reforms and the country's long-term economic recovery. Settlement risk remains relatively contained, although liquidity constraints and the small size of the market can create additional considerations for international investors.

Overall, Sri Lanka presents a market that is gradually rebuilding confidence through infrastructure enhancements and economic reforms, while continuing to navigate the operational and economic challenges typical of frontier markets.