Cambodia Joins Stocks Party

Agence France-Presse/Getty Images: Minister of the Economy and Finance Keat Chhon, top, rings bell to start trading on Cambodia's new stock exchange.

Only One Listing So Far, but a Symbol of Southeast Asia's Emergence on Global Stage

By JAMES HOOKWAY And ERIC BELLMAN
Updated April 18, 2012,

PHNOM PENH, Cambodia—Cambodia tapped into the growing global interest in Southeast Asia with the start of trading in the sole stock at its gleaming new stock exchange on Wednesday.

Ordinary Cambodians and local businesses scrambled to buy into the country's first initial public offering—of shares in a local water company. They weren't disappointed when trading began at the deliberately auspicious hour of 9:09 a.m.

Phnom Penh Water Supply Authority shares jumped in price to close at 9,300 riel, or $2.33, up 48% from their IPO price of $1.57 a share, which raised $20 million. The shares—15% of the firm—were 17 times subscribed.

Cambodia's Stock Market Begins Trading

Two more state-owned companies, Telecom Cambodia and Sihanoukville Autonomous Port, also plan to list shares on the new exchange.

Some people here, such as hotel chef Seng Sothy, see the launch of the bourse amid the capital's growing traffic as a symbol of national pride. "We're like other countries now," she said recently.

She might be right in more ways than one. From the Philippines to Thailand and Indonesia, overseas investors and local businesses alike are rediscovering the potential of Southeast Asia, after more than a decade lingering in China's shadow.

A number of stock markets in the region have reached multiyear highs in recent weeks, with benchmark indexes in Manila and Jakarta up 19% and 11% year over year, respectively, amid sluggish global growth rates. In Indonesia's case, a series of sovereign-rating upgrades have opened the country to a new class of institutional investor, such as pension funds that are barred from putting money into any country without an investment-grade credit rating.

Indonesia joined that club late last year, and now investors are betting that the Philippines will follow, perhaps by the end of 2013, Credit Suisse predicts. The country's improving prospects, also driven by low inflation figures and a strengthening currency, are strengthening the country's consumer market and bolstering the Philippine firms that dominate that sector. On Wednesday, Philippine stocks rose to an all-time high, rising 0.56% to 5186.20.

"The consumer sector will hold up very well no matter what," said Roland Haas, director of Jakarta-based investment advisory firm PT HB Capital Indonesia. "There is more interest in [Southeast Asia] partly because those markets have been more domestically oriented rather than export oriented, like South Korea, Japan and Taiwan."

To be sure, there are still problems. Vietnam, for instance, didn't participate in the 1990s boom and is now struggling to absorb its own policy-making lessons after inflation peaked at 28% last year. Indonesia is heavily dependent on commodity exports. Political tensions also complicate the outlook in a number of countries.

Nonetheless, a flurry of local deal-making underscores the popularity of some of the region's bourses. Singapore's DBS Group Holdings Ltd. D05.SG +0.44% announced plans this month to buy Indonesia's PT Bank Danamon for $7.3 billion and Manila-based San Miguel Corp.'s SMC.PH +0.27% $500 million bet on the regional tourism and business travel boom by buying a 49% stake in Philippine Airlines.

The Philippines' largest bank, BDO Unibank, meanwhile, is offering up the country's biggest rights issue, at $1 billion, as it prepares to expand, while Japanese firms including Honda Motor Co. 7267.TO +0.82% and Sharp Corp. 6753.TO +0.99% in the past few weeks have announced a combined $1 billion worth of expansion plans to better target the archipelago's booming middle class. In all, U.S. firms have invested one-third more in Southeast Asia than they have in China, and 10 times as much as they have invested in India.

Investors anticipate the launch of the Cambodian Securities Exchange on Wednesday. The debut came amid a surge in Southeast Asian markets.

Even setbacks such as Thailand's debilitating floods last year are serving to highlight the region's importance to the rest of the world. Many key firms are returning to reinvest in Thailand, believing that is still their best bet for long-term profit growth.

All this activity isn't a flash in the pan, says Indonesia's trade minister, Gita Wirjawan. "A lot of the excitement around Asean is based on a 10-to-20-year time line," he said in a recent interview. "The macro numbers are strong. This is sustainable."

Southeast Asia clawed back the hard way. In the 1990s, huge amounts of foreign borrowing, tied to what were thought to be tightly dollar-pegged currencies, led to a harrowing financial crisis. As currencies around the region eventually buckled, Thailand and Indonesia went cap in hand to the International Monetary Fund for multibillion-dollar bailouts, while other countries fell into deep recessions.

"We fell off the grid and had to find a way back," says Lim Guan Eng, the chief minister who runs Malaysia's main technology and export hub, Penang.

Part of the answer was China. While China took over Southeast Asia's old role as the world's low-cost factory floor, it also ramped up demand for component parts and raw materials. Southeast Asia helps supply the components and raw materials China needs to churn out electronic doodads and other goods for the rest of the world and its own growing consumer class.

Significantly, though, a number of countries also began to encourage higher-value industries, reducing their dependence on cheap currencies, while China still tries to peg back the value of its yuan.

Driven by investors such Toyota Motor Co. 7203.TO +1.20% and Ford Motor Co., F -1.01% Thailand's auto sector now exports to more than 150 nations, while the Philippines dominates the world's call-center business and Malaysia now attracts a growing slice of global spending on electronics research and development, showing how much of the region is now focusing on quality over price.

Even Cambodia has found a role as a niche provider of high-end garments for U.S. retailers such as Gap Inc., GPS +2.22% despite cheaper competition from places such as Bangladesh.

The upshot: A growing middle class that economists say could help buffer Indonesia and the Philippines, in particular, from global shocks—including the possibility of a hard landing in China.
—Martin Vaughan contributed
to this article.