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Exchanges provide windows to economies


Stock market a good choice for long-term investors


Stephen Hsu, a native of Taiwan, runs Phnom Penh Securities, one of a dozen underwriters licensed by the SECC to prepare companies for IPOs on the CSX and to engage as an intermediary with the public for trading on the CSX.  Hsu has spent the last 20 years in banking, insurance and securities.  He heads a team of 45 employees, six from Taiwan and 39 Cambodians.  

• It looks like the choice of Phnom Penh Water Supply Authority (PPWSA) is a good one for the first CSX IPO.  Everybody needs a steady water supply and they seem to have sound management and a good infrastructure.  Do you agree?  Would you recommend investors buy in to PPWSA?
PPSWA is a good company and it has stable business performance. We can predict that there will be stable return by dividend or right. For the investor, if you are long-term investor, and want more interest rate than a bank can give, then this would be a good choice. For the short-term investor, state-owned enterprises generally won’t have big price fluctuations. Stocks will follow the trend of the international markets and currently, due to the debt crisis in Europe, the international stock markets won’t have big fluctuation.  We won’t advise our clients to make short-term investments. Moreover, the liquidity risk is part of the equation as well.  We suggest making a conservative amount for subscription.

Furthermore, PPSWA transferred 84 per cent of shares to Class A stock, and 16 per cent of shares to common stock in February, 2012. The Class A stock holder can’t vote and also can’t get a dividend. This will lead to an earnings per share (EPS) increase of 6.25 times, but we need to notice that an investor only needs to possess 8 per cent of the original capital, to control the whole company easily.

• How about the trading in Riel on the CSX and the ability to settle in USD?  Would you advise your clients just to keep Riel accounts and settle in Riel rather than settling in USD?  It seems like there might be too many exchange rate fees.

For our standpoint, we hope to settle in USD. First, we can attract more foreign investors. Second, we can reduce the exchange rate fluctuation. Third, trading in USD will encourage the foreign enterprises to list on the Cambodian stock market and it will become the financial center of this region. Even though we started more recently than other players, as long as the regulations are completed and contain fewer limitations, Cambodia will have the possibility to become the financial center of Southeast Asia. We can take an example from Dubai. The stock market should not be worried about foreign investors making profits. The foreign investors will mobilize economic growth, and make it easy to finance enterprise. This will strengthen the enterprise constitution, and increase the tax revenue of government. But now, there is a difficulty to settle in USD by current regulation and we can predict that, if the stock market performs well, it will lead to big fluctuations in the exchange rate. In contrast, if the exchange rate only slightly fluctuates, it also indicates the stock market could hardly perform well.

• Do you expect the CSX to be successful?  Why?
I think CSX will be successful, as long as the government has completed relevant measures, for example:

  1. Encouraging the enterprise to list by regulating special articles, tax amnesty etc, because currently, the regulatory environment is not as attractive as it could be.
  2. The tax auditing should be fair and strict in order to prevent non-listed companies from tax evasion, so that the listed companies won’t lose their competitive advantages.
  3. The trading regulation should link to international standards as it will attract foreign investment, such as continuous trading, financing bills, and margin trade.

• When you look into the future and see the IPOs, initially from the State Owned Enterprises like PPWSA, possibly the Sihanoukville Port Authority and Cambodia Telecom, what kind of private companies do you see making the decision to do IPOs?   Trading companies?  Banks?  What’s the profile of a good company that would be an IPO candidate?

The stock market is the window to the Cambodian economy, which strongly depends on garments, tourism, agriculture (especially rice) and other industries which supply domestic demands such as banking, imports and exports, construction and many others. So far more than 700 local companies have been contacted by Phnom Penh Securities.  These local companies face incomplete financial reports or don’t trust the stock market.  Nevertheless, for foreign companies, they have more knowledge about the stock market, and have completed financial report.  As a result of those facts our strategies mainly (90per cent) focus on garment factories. We mobilize the stock market from the foreign companies. Moreover, this industry is a profitable and suitable to list on the stock market.  

• Do you think the trading fees the CSX charges are too high?  We understand the CSX has made a decision to reduce fees and are waiting for SECC approval.  Do you see that as a good thing?

For trading fees, we have prepared a report for the CSX and the SECC comparing international trading fees. The trading fee of CSX is high as it predicts trading volume is too conservative, because they recognize the profit will be too low.  That’s why they set the price too high. But we think there should be a lower price to push the volume higher, in a strategy whereby we let the market grow first and then the profit will come after.

But for current regulation, 65 per cent of trading fees go to CSX, the rest (35 per cent) go to 12 securities firms. That means only 3 per cent of trading fees go to each securities firm. If that remains the case, all the securities firms will go bankrupt.  Moreover, for investors, the investment capital will be deducted to almost $0 by trading 71 times, and the CSX will be the winner, the rest of the players will be losers. If things end up like that, the stock market will find it hard to be successful. So we suggest the CSX lowers its fees by comparing them with international markets.   

• When we talk about stock market “liquidity” or lots of trading action, would you hope that the first IPO at the CSX is wildly successful?  Would the success of the first IPO set the tone for the future of the CSX do you think?
We have seen the obstacles that have had to be overcome by companies for their first IPO and these obstacles make subscriptions difficult, especially for foreign investors. Facing up to this challenge, other securities firms will stand aside, and watch how the assigned securities firms perform. The liquidity risk is expressed that we need to inform our customers that if they buy a stock which increases by 50 per cent on the first day, it may be hard to sell out.

Currently, we can’t see to whom we can sell our shares when the IPO gets listed. All securities firms need to cooperate together for the first IPO in order to make it success. Otherwise, it only makes the market become smaller and liquidity risk needs to be taken into consideration.

• Could you explain the work of your company, Phnom Penh Securities Plc?  Are you part of a larger group?  What experience and connections does your securities firm bring to the game in Cambodia?  How can we, as the public, differentiate Phnom Penh Securities from the other securities players in this market?
The members of PPS’s management team are all Taiwanese; our shareholders are from America, Taiwan and Cambodia. We have prepared for more than one year. Our main jobs are training investors and companies for listing. Currently, a number of companies are preparing and will gradually be listed within this year. Until now, 200 seminars have been conducted, more than 3,000 accounts have been issued, plus 750 companies have been contacted. We hope to step forward firmly, and make the market successful.

• Your firm and the other 11 firms licensed by the SECC to operate as intermediaries to the CSX have made considerable investments to prepare for a stock exchange in Cambodia.  Are you satisfied that all the parties involved in the CSX, the SECC and on the government side have done sufficient preparation and have shown sufficient professionalism to honor the estimated $100 million investment you and the other securities firms have made to prepare for the CSX?  Why?
Currently, the regulation can be considered as completed, however advantage and preventing fraud on the stock market should both be weighed. If the laws are too strong on preventing fraud, the market can’t develop well. So we suggest letting the securities firms play the role of preventing frauds and to put more responsibilities on them. The SECC only needs to declare each law and regulation, and strengthen the auditing. However, parts of regulations are complicated to investors and relevant measurements are not yet completed. We hope this part will be improved before trading so that all regulations will be convenient for investors after considering the risk, so that the stock market will develop faster.

• Do you agree that public information is an important part of any successful stock exchange?  Why?
The transparency of public information is the basic requirement of the stock market and the trustworthiness of verification by accounting firms also plays a key role. If this part has a problem, the investor will bear heavy losses and insider trading will spread if the information is not transparent. Consequently, the stock market will become gambling. Good companies will not list, and the stock market will fail.

• When you counsel investors on which stocks to buy, given your experience as a securities professional, what characteristics do you tell them to look for when they are choosing to invest in a company?

  1. Paying attention to the owner’s characteristics, whether he or she is focused on business activities, and whether he or she is trustworthy.
  2. Paying attention to the trends of international stock markets.
  3. Competition of relevant industries within the region.
  4. An overview of macro-economics.
  5. If the above index is positive, then we use a technical analysis index to determine the buying and selling point.
  6. Setting up and strictly following personal strategies.
  7. Setting up your loss and profit point.
  8. More learning and research.


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