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Guests discuss the stock market at an event hosted by Cambodia Stock Exchange in Phnom Penh last year.
Guests discuss the stock market at an event hosted by Cambodia Stock Exchange in Phnom Penh last year. Athena Zelandonii

Future bourse potential touted

The lacklustre performance of Cambodia’s stock exchange, which has attracted only four companies since it launched in 2011 and whose stocks see days without a single trade, is expected to turn a corner soon, capital markets experts said during a panel discussion yesterday.

Speaking at an event hosted by regional law firm Sciaroni and Associates, they said vigilant optimism, sustained economic growth and more listings would eventually breathe life into the languid exchange.

Han Kyung Tae, CEO of Yuanta Securities (Cambodia), pointed out that the Cambodia Securities Exchange (CSX) was not the only stock market in the region to face depressed activity and growing pains.

“If you look at the Vietnamese stock market that opened in mid-2000 and the Chinese stock market that opened in early 1990s, both experienced a depressed stage like what Cambodia is going through right now,” he said.

The Ho Chi Minh City Stock Exchange (HCMC) launched in 2000 and currently has 307 listed companies with a market capitalisation of $51 billion as of end-2016, while the Shanghai Stock Exchange (SSE) launched in 1990 and boasts 1,213 listed companies, with a market cap of about $4.1 trillion. Laos, which launched its bourse the same year as the CSX, has five listed companies with a market cap of over $1.3 billion.

Seeing that it took years for these markets to take off, Han added it was only a matter of time before Cambodia’s impressive economic growth rate piqued the interest of investors looking to earn dividends in frontier markets.

“While the CSX has only four listed companies with a market cap of a little over $200 million, which is about 1 percent of the country’s GDP”, he said, “in the next five years, with the size of the local business that will likely list sometime in the future, I would expect the market cap to be over $4 to $5 billion.”

Han said this growth projection was largely contingent on the expectation that large financial institutions such as Acleda Bank, state-owned energy provider Electricite du Cambodge (EdC) and state-run port operator Sihanoukville Autonomous Port (SAP) would eventually joined the bourse.

To date, SAP is the only company that has formally announced its plan to list, and is reportedly on track to launch its initial public offering later this year.

Brian Erskine, head of asset management for Forte Insurance, said for the CSX to truly take off, foreign investors would have to get over their misguided perception of risk.

“While global perception of Cambodia risk is still quite high, as greater education to the international investment community increases, I believe that perception will ease,” he said.

He added that this would happen as the Mekong region matures in general and Cambodia’s outstanding economic growth attracts more investor attention. Initial focus would be on companies that are transparent and meet international accounting standards.

Erskine said the CSX should be viewed as having long-term potential, which would set the stage for future institutional investment.

“The point is, whether you are listing or investing in the stock market you should be prepared to take a long-term perspective, because it will take time for the economy to generate new liquidity and listings and to catch up with neighbouring economies,” he said. “But with Cambodia’s economic growth, it is inevitable that it will happen.”

Joseph Lovell, a partner at Sciaroni and Associates, stated flatly that low liquidity in the market continues to be a main stumbling block for the CSX.

“Liquidity is really like the chicken and egg situation,” he said. “Investors want liquidity, but need companies to list. But companies need to list to create liquidity.”

Nevertheless, he said he expected the stock market would double in size in the next five years and eventually attract foreign investor attention.

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