United Nations Capital Development Fund report criticizes CSX

The United Nations calls on Cambodian regulators to do more to increase liquidity in the Kingdom’s stock and bond markets. A report by the United Nations Capital Development Fund (UNCDF) and the Common Fund for Sustainable Development Goals (Common Fund for the SDGs) said the government should even consider a national rating agency to increase the confidence of foreign investors. in corporate debt problems.

The study points out that the volume of trading of stocks and bonds on the Cambodia Stock Exchange (CSX) is very low. He says the lack of investor education is one of the main reasons people are unwilling to invest their money in Cambodian companies.

“Based on our conversation with market practitioners, we believe that CSX needs to further promote and educate regional market participants and domestic and foreign investors about the products. [offerings], the benefits and risks of investing and trading in stocks and bonds listed on [the] CSX. Our opinion on [the] The CSX website shows that [much of the] the information contained on the site and linked to the education and publication section has not been regularly updated, ”the report said.

The managing director of SBI Royal Securities in Phnom Penh says he also believes regulators need to raise their game.

“While the number of registrations continues to increase this year and next, the SERC [Securities and Exchange Regulator of Cambodia] and the CSX should set up another education program.

We need more Cambodians to better understand the stocks, ”said Seng Thoeun.

CSX director Kim Sophanita said she read the report and appreciated UNCDF’s attempt to identify the main bottlenecks in the market. She said CSX is committed to improving investor understanding.

“Developing a market does not happen overnight. In fact, we have implemented many public awareness and investor education programs including public / private trainings, various contests, stock exhibitions, data / article posting, educational website hosting, programs TV education and much more, but it’s never enough for our child market. This work needs to be done continuously, regardless of the size of the market, ”she said.

The report also calls on the Kingdom to allow more securities companies to engage in the Cambodian market and more institutional investors to trade.

“The limited number of listings and the lack of price movements may have discouraged investors from participating in CSX. However, a bigger problem is the underdevelopment of the mutual fund and hedge fund sectors as well as family offices in Cambodia, ”the report says.

“Cambodia must allow institutional investors such as government entities, commercial banks and insurance companies to take more risk in the bond market. We also believe that foreign investors will have to intervene to increase liquidity. “

There are 11 securities brokerage firms registered with the CSX. Investors who wish to trade stocks and bonds on the CSX must open a trading account with one of them or use the exchange’s mobile.

Exchange system. The CEO of RHB Securities (Cambodia) said CSX could do more to make trading easier and faster.

“There is a need for the industry to work collectively on improving infrastructure to enable a more streamlined account opening, trading and settlement process to meet the increasingly demanding public expectations for convenience. Take for example how convenient it is now to open an online bank account and start banking transactions on a phone in less than five minutes, ”said Iv Ranarith.

There are seven stocks listed on the CSX with two more to come in the coming months. DBD Engineering will list its shares on the Growth Board for Small and Medium Enterprises on August 30, and JS Land is expected to be listed in September, assuming it obtains regulatory approval. Another bond could start trading on the CSX as early as this month, adding to the six already listed.

The UN report suggests that investor appetite would be higher if the bonds were rated by an independent agency to establish the issuer’s risk of default on its debt.

“The growth of CSX can be better achieved in a shorter time frame through the establishment of a national credit rating agency. Alternatively, the government may seek to attract a foreign rating agency (ASEAN) that is able and authorized to rate Cambodian bonds. The existence of a credit rating agency will also help raise awareness among potential Cambodian investors and savers in terms of credit differentiation, ”the report says.

Thoen of SBI Royal says greater transparency would increase investment both at home and abroad.

“We should have a supporting infrastructure like a custodian bank, credit rating agency, bond trustee and pricing agency to accommodate regional professional investors,” he said. “Rely on [a] small base of domestic investors to succeed a few IPOs is not really sustainable.

RHB’s Ranarith said that an established capital market would open a new avenue for foreign investors who are currently channeling money into Cambodia through foreign direct investment (FDI).

“We are missing on this front. We know for [a] the fact that there are global and regional funds that have a mandate to invest through a capital market rather than to invest in the form of FDI. An established capital market can attract as much foreign investment as it does FDI, if not more, into the country, ”he said.

CSX says that by adding more stocks and bonds to the market, it hopes to attract more foreign investors.

“Currently, we still have a few institutional investors, but they take a very large part of the annual transactions, especially foreigners. As our equity and bond markets grow, we expect more local and foreign institutional investors to come with the upcoming presence of new market players. [and] tools such as custodian banks, government bonds and bonds denominated in US dollars, ”Sophanita said. She added that the presence of a rating agency would help the bond market grow rapidly.

The Common Fund for the SDGs aims to encourage investments to put countries back on track to achieve the Sustainable Development Goals. UNCDF tries to make public and private finances work in the poorest countries of the world.

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