Cambodia Real Estate Could Benefit From QE3

November 8, 2012, 
The Wall Street Journal
By CHUN HAN WONG

PHNOM PENH—Cambodia's highly dollarized economy could benefit from a rush of foreign capital into Asia unleashed by the U.S. Federal Reserve's latest economic stimulus, unlike some of its Asian neighbors, as it lifts demand for real estate and garment exports in the developing country, a senior official at the country's central bank said.

Authorities across Asia have been grappling with the threat of asset-price inflation amid rising capital inflows from developed economies, warning that liquidity flows could surge following the recent announcement of new bond-buying programs from the U.S. Federal Reserve, European Central Bank and Bank of Japan. Singapore's central bank, for instance, last month imposed tighter rules on new home loans to head off a property-price bubble.

But unlike its richer neighbors, the absence of deep capital markets should minimize the prospect of asset price bubbles in the once war-torn Southeast Asian state.

If money from the third round of quantitative easing "turns into capital flows into Asian economies, it wouldn't have too much impact in terms of hot money coming into Cambodia," Nguon Sokha, director general at the National Bank of Cambodia, said in an interview Wednesday.

Still, any capital inflows could boost Cambodia's "still subdued" real-estate market, which only recently recovered from a severe correction during the global financial crisis of 2008-2009, Ms. Sokha added.

Inflationary risks would also be tempered by Cambodia's heavy reliance on the U.S. dollar, the primary currency for local commerce and banking, Ms. Sokha said.

"We think the U.S. dollar has stabilized," she said, noting that the dollar hadn't weakened after the Federal Reserve's announcement of the QE3 in September, unlike in the two earlier rounds of quantitative easing.

The National Bank of Cambodia, which occasionally intervenes in foreign-exchange markets to maintain the stability of the Cambodian riel, would take steps to keep the U.S. dollar trading at around 4,050 riel, Ms. Sokha said. "We should have a fluctuation of the exchange rate at a pace that is manageable... and doesn't create risks for consumers and investors," she said. "If the U.S. dollar falls too far below 4,000 riel, we would definitely intervene."

The U.S. dollar was indicated at 3,995 riel Thursday as of 0630 GMT.

At the least, if the QE3 works as the Fed intends, Cambodia's economy is likely to get a tailwind from an increase in U.S. demand for Cambodian garment exports, Ms. Sokha said.

Cambodia's economy is likely to grow 7% this year despite slower demand from key trading partners, the U.S. and European Union, according to the central bank. It should be able to maintain 7% growth for 2013 as well, anchored by garment exports and a fast-growing tourism industry, Ms. Sokha said. Foreign direct investment in Cambodia is set to surpass $1 billion this year, up from $873 million in 2011, she said. Such trends are expected to lower Cambodia's current account deficit to 8% of gross domestic product for 2012 and 2013, from about 9% last year, Ms. Sokha said. But she warned that the shortfall could widen to 9%-10% of GDP over the medium term, as the country's young, growing population spurs consumption and demand for imports.

Write to Chun Han Wong at chunhan.wong@dowjones.com