In 2021, despite the unfavourable global economic situations due to the Covid-19 pandemic, Cambodia’s economy showed remarkable performance with about three per cent growth. Also, many experts have predicted that the economy will continue to grow by more than five per cent in 2021.

Therefore, it is apparent that the Kingdom’s economy is rapidly recovering, thanks to the government’s successful control of Covid-19 crisis with a preemptive vaccine campaign and early transition to “Living with Covid-19 policies”.

The development of the capital market is essential for a country’s sustainable economic growth as shown in all developed countries. Limitation exists for companies to supply funds from direct financing market because of its high cost, and continuous corporate growth is only possible with capital raising through the capital market.

Unfortunately, the Kingdom’s capital market is still in the beginning phase compared to neighbouring countries. So, I would like to propose three major factors for the development of Cambodia’s capital market.

Firstly, on the supply side, more products have to be provided to investors. Currently, only eight stocks and eight corporate bonds are listed on Cambodia Securities Exchange (CSX). Even when compared to neighbouring countries, the number of products is too small. At least, 50 different products are necessary for investors to get interested in the market and to choose products according to their investment preferences.

To be specific, public companies, electricity organisations and telecommunication corporations, and large financial institutions have to get listed on the exchange to provide investors basic market size. Also, considering the fact that there are 43,000 registered small and medium-sized enterprises (SMEs) in Cambodia, it is significant to encourage more small but innovative companies to go for Initial Public Offering (IPO).

Secondly, on the demand side, increased participation of institutional investors in the market is crucial. As of the end of 2021, CSX statistics showed a market capitalisation of $1.8 billion, 31,000 trading accounts, and daily average trading value and volume of $269,169 and 234,628 shares, respectively. In comparison to 2020, daily average trading value in 2021 increased by 127.21 per cent while the daily average trading volume rose by 396.34 per cent.

However, there are still many elements that require improvement. For example, more than 90 per cent of market participants are individual investors, and only about 350 individual investors actively participate in the market. As a result, the movement of stock price is too small to attract investors. The stock price of a company should move up and down according to its performance and the influence of global economic conditions.

But, regardless of the company’s performance and status, the stock price of a company listed on CSX is determined by the demand and supply of a small number of individual investors. Various institutional investors exist in Cambodia, such as securities companies, banks, insurance companies, and asset management companies. Only if they actively participate in the market, Cambodia’s capital market would function properly.

Lastly, the government’s active policy support for the capital market is desperate. As we know in cases of many developed countries, in the beginning, capital market development was actively initiated and supported by the government. This is because the development of the national economy and the capital market must go together.

Specifically, a wide range of government support, such as tax benefits, should be provided to encourage more companies to voluntarily go for IPO, which will result in more investment opportunities for the public, and easier and lower cost of financing for companies. For instance, if there are more tax incentives for listed companies, many large scale companies, such as electricity, telecommunication, and financial organisations, will want to be listed, which will lead to great investment opportunities for the people of Cambodia and a more transparent economy.

The year of 2022 is a meaningful year for CSX and the Cambodian capital market because it has been 10 years since we first opened the stock market. To take advantage of the 10-year anniversary, CSX plans to make diverse efforts on both supply and demand side of the capital market.

For example, we will do our best to convince various firms to get listed on CSX. We will also keep trying to expand our investor spectrum by attracting more institutional and foreign investors. In addition, we are preparing for a 10-year anniversary event to raise public awareness on the capital market.

However, CSX’s efforts will not be enough without the support of the Cambodian government. So, I hope the Kingdom will move to the next level with the development of the capital market in the near future.

Kim Kyeonghack is vice-chairman and chief operations officer of Cambodia Securities Exchange (CSX).