Subscribe Search

Search form

Logo of Phnom Penh Post newspaper Phnom Penh Post - New day for old finance market

New day for old finance market

New day for old finance market

The formalisation of Cambodia’s derivatives sector will provide budding investors with more choices for their portfolio – although at a risk, insiders say.

After years of deliberation, the Securities and Exchange Commission of Cambodia (SECC) on July 2 passed a prakas, or regulation, which allows individuals to apply for the Kingdom’s first derivatives licence.

The complex financial instruments – essentially bets made over the future price of either a currency or a commodity – won’t be traded over the nation’s stock exchange but through individual brokerage firms.

Despite the SECC’s recent move, and a mini-crackdown in 2011 that saw five derivatives firms’ activities shut down at once, derivatives have been available – albeit under the radar – in Cambodia for about a decade, and the number of outfits has grown.

Meas Liratnak, a former investment manager at firm FUGI Gold, estimated that about 20 brokerage firms have set up in Cambodia since the mid-2000s.

“I can see a lot of companies, newcomers, coming [in],” said Liratnak.

Targeting rich businessmen, retirees, and others with cash to spare, derivatives firms offer contracts on gold, silver and foreign exchanges, which are high-risk, and high-return.

Liratnak estimates that only 30 per cent of investors even make a profit, but a well-placed bet can bring a 5 to 10 per cent return in a single month, Liratnak said.

Typically, each transaction costs $30. With large accounts in the hundreds of thousands often seeing 500 transactions or more per month, the money adds up quickly, said Liratnak.

“Whether the transaction loses or profits, the commission still comes.”

Liratnak expects the sector to grow even more after the ASEAN Economic Community comes to fruition at the end of the year, since many of the Kingdom’s brokerage firms have outside partners where derivatives sales are legal, such as Indonesia, Hong Kong and Singapore.

Although risky, derivatives certainly offer a more exotic chance of making quick money than the Cambodian Stock Exchange.

After four years of operation, the CSX remains a two-trick pony, with its only listed stocks being Taiwanese garment factory Grand Twins International and state water utility company the Phnom Penh Water Supply Authority.

“The stock market is too quiet here,” said Luke Wang, vice general manager of Phnom Penh Securities’ brokerage department, who said his firm plans to apply for derivative brokerage license from the SECC, thanks to the new prakas

“[The CSX] needs much more different products for investors.”

Although the exchange’s pace has been slow, Soleil Lamun, deputy market director at the CSX, said that legalising the derivatives game would be complementary and not bring in too much competition.

“Moreover, I think there are many potential investors eying the CSX that do not want that betting type [of investment],” he said.

While potential brokers line up at the SECC to be the first Cambodians to officially trade derivatives under the new law, the financial instruments have been blamed for sparking disasters in the past, such as the 2008 financial crisis.

But Cambodia is unlikely to suffer a similar fate bought on by low-level derivative trading; with brokers targeting retail clients and the derivatives not being exchange-traded in the Kingdom.

Nevertheless, the SECC has imposed $5 million capital requirements on prospective brokers and stipulated that investors can only trade with one broker to a maximum of $10,000 without special permission, to ensure that the industry is carefully monitored.

And individual investors should still be wary that such products are inherently risky.

“Derivatives investment, including commodities futures, can be a good component of a balanced investment strategy. At the same time, there is a portion of the investment public whose trade in derivatives is more akin to gambling than investing,” said Joseph Lovell, managing partner at BNG legal

“Anyone considering investing in the relatively sophisticated market of derivatives should best be an experienced investor who has done sufficient due diligence on both the investment and anyone handling trades.”

Knowledge of derivatives among Cambodians is better than in the past, although further steps needed to be made, said Sokethya Chhor, a manager at brokerage training firm Interactive Futures.

“In order to minimise the risk, you need to educate people.”

RECOMMENDED STORIES

  • Thy Sovantha threatens new suit

    Social media celebrity and card-carrying CPP member Thy Sovantha yesterday said she will file a lawsuit against wildlife NGO head Suwanna Gauntlett alleging discrimination after the latter allegedly denied her access to an ecotourism program the group is launching today in Koh Kong province. The

  • Police raid Siem Reap party, arrest 10 foreigners over ‘pornographic’ images

    A group of 10 foreign tourists appeared in court today after being arrested for producing “pornographic” photos in Siem Reap town on Thursday, while dozens more were detained temporarily and let go after being lectured on their behaviour, according to authorities. A report posted to the

  • Hun Sen’s in-law removed from RCAF after cockfighting rings raided

    Thai Phany, the nephew-in-law of Prime Minister Hun Sen who is accused of running two large cockfighting rings, has been removed as a general in the Royal Cambodian Armed Forces. Phany, formerly a one-star brigadier general, was removed by royal decree on December 19, according to

  • Government approves plan to relocate Phnom Penh’s airport

    The government has signed off on a proposal to build a new airport to serve Phnom Penh and has earmarked land in Kandal province for the $1.5 billion project. A new international airport to replace the existing Phnom Penh International Airport will be constructed on partially