Is Cambodia ready for its own stock market?

By Ben Bland

Capital markets can be vital tools of development, helping the better companies in poorer countries to get access to the money they need to grow, creating wealth and employment in the process.

However, given the fragile nature of stock markets, it is important that countries don't run before they can walk. Which is why Cambodia's decision to press ahead with the launch of its own stock exchange next year is slightly concerning.

After all, this is a country where business and personal disputes are still routinely settled with a late night shoot-out in the capital, Phnom Penh. Is Cambodia really ready for the wild fluctuations, the speculators and the scams that typically dominate new equity markets in developing economies?

Whatever you think, you have to commend the Cambodian government's resilience in sticking to its plans for a 2009 launch, despite the ongoing global turbulence.

Hang Chuon Naron, secretary general of Cambodia's Ministry of Economy and Finance, told the Phnom Penh Post that he hopes a stock market will provide a more long-term source of finance than the foreign aid (around $600m annually) that the country is currently reliant upon.

"We hope the stock exchange will provide longer-term finance compared to what we have relied on in the past, such as banks, national budgets, foreign aid and foreign investment," he said. "I think in five or ten years, the stock exchange will play a key role in strengthening Cambodia's financial sector, but we must proceed carefully to build trust from our people and investors."

But while he's right about the long-term benefits of a stock market as a cheap place to raise capital, the problem across the developing markets of Southeast Asia is the pre-dominance of short-term speculators, chancers and crooks.

This article in today's Bangkok Post sums up the dodgy share trading scene over the disputed border in Thailand rather nicely.

"On any given day, investor cliques can join hands, even sometimes with company management and major shareholders, to push share prices one way or the other," the article notes. "For these investors, fundamentals are meaningless - indeed, the larger and more prominent the company, the less attractive it is for speculators, due to the greater difficulty in manipulating prices for large-cap stocks." While Southeast Asia's comparatively inexperienced and poorly funded regulators do their best to get on top of these types of market abuse, they are generally fighting a losing battle against the better-funded and more powerful crooks.

But trading scams on illiquid markets are not just the preserve of Asia. When I covered London's Aim market for The Telegraph, I would get a complaint at least once a week from an investor concerned about alleged insider trading or ramping/deramping. And, on more than one occasion, I shared lunch or a drink with small-cap executives and brokers who showed a well-hardened disdain for market rules and minority shareholders.