Asia’s Newest Stock Market Is Risk to Investors, Sam Rainsy Says

By David Whitehouse


Feb. 8 (Bloomberg) -- Investors in Cambodia, tied with Yemen as the world’s 164th-cleanest country for doing business, face risks in a planned stock market because of ineffective financial and legal systems, the country’s exiled opposition leader said.

“Among the little dragons of Southeast Asia, Cambodia is the least encouraging,” Sam Rainsy, 62, a former fund manager with Banque Paribas and ex-Cambodian finance minister, said in an interview in Paris. “The country needs a much longer period of preparation in terms of company accounts and corporate governance. Investors risk paying for nothing.”

Cambodia’s stock exchange may open as early as April, listing a state-run port, telecommunications operator, and manager of the capital’s water system, according to partner Korea Exchange Inc. Developing a capital market may lessen reliance on aid, equivalent to a tenth of the nation’s $11 billion economy, and the government says it has delayed starting the bourse until conditions are right.

“Frontier markets need not be perfect democracies to be lucrative investments,” said Douglas Clayton, chief executive officer of Leopard Capital, whose $34 million Leopard Cambodia Fund invests in closely held companies. “China and Vietnam are one-party states but at certain times those countries have been very good places to invest.”

Lack of support from the financial-services industry for agriculture is a constraint on Cambodia’s economic expansion, according to the Asian Development Bank. The country’s economy may grow 6.5 percent this year, according to the ADB. That’s less than an average of 8 percent from 2001 to 2010, and compares with an ADB prediction of 8.8 percent expansion for China and 6.3 percent for Vietnam.

Facing Arrest

Sam Rainsy, whose party controls 26 out of 123 national assembly seats, faces arrest if he returns to contest elections in 2013 following a 10-year conviction in absentia for removing border posts along the frontier with Vietnam, charges he says were politically motivated. Cambodia needs to tackle corruption and bolster democratic institutions to propel growth, he said.

Cambodia is ranked by Transparency International as 164th in the world by perception of corruption, behind only North Korea, Myanmar and Afghanistan in the Asia-Pacific zone, with more than 5 percent of its health budget swallowed up by graft before it leaves government coffers.

“The country is a banana republic where corruption is an ingrained part of government,” Sam Rainsy said, flanked by Buddhist miniature statues in his family’s apartment near Montparnasse in Paris. “Investors taking part in the new Cambodian stock market will be taking large, unconsidered risks because the conditions do not yet exist to create a securities market worthy of the name.”

Not Involved

The government is not involved with the charges against Sam Rainsy, and other members of his party are operating as normal, spokesman Phay Siphan said by phone from Phnom Penh, the capital. Sam Rainsy must respect the rule of law and fight his case in court, he said.

“It’s the first time Cambodia is involved with a stock market, which is why we delay and delay and delay,” Phay Siphan said. “We are not perfect, but the government and private sector are trying our best to facilitate and make everything clean, transparent and fair for everyone.”

Elections in 2008 fell short of international standards, according to European Union observers. Though fairer than earlier polls, they were marred by the use of state resources and the distribution of money by the Cambodian People’s Party, according to the EU. Prime Minister Hun Sen, 59, a former Khmer Rouge member, has held power since 1985.

Raise Taxes

Sam Rainsy, who leads a political party named after him, said he’d raise taxes and increase salaries for public servants in a bid to reduce corruption if he came to power.

His political career echoes that of his father, Sam Sary, who was a member of the Cambodian delegation that negotiated independence from France in 1954. The family was exiled to France in 1965 after Sam Sary founded a political party in defiance of the French-appointed head of state, Norodom Sihanouk.

Sam Rainsy returned as finance minister in 1993 following the nation’s first democratic elections. He lost the position in 1994 and set up his own party the following year.

“I would have done it in any case,” he said, when asked if the Sam Rainsy Party represented a continuation of his father’s political efforts.

First Listings

State-run Phnom Penh Water Supply Authority, Telecom Cambodia and Sihanoukville Autonomous Port will be the first three companies to list on the stock exchange, Shin Gil Soo, senior vice president of Korea Exchange’s emerging markets business team, said in an interview in Seoul. Several private sector companies are considering selling shares, he said, declining to name the companies.

In 2011, Korea Exchange also started a stock market in neighboring Laos. The two-stock Composite Index soared 86 percent in the first three weeks of operation a year ago. It now trades 51 percent below its Feb 2, 2011, peak.

“It’s a question of whether the stock-exchange operators can isolate themselves from an environment that is perceived to be pretty corrupt,” said Lao Mong Hay, a political analyst and retired researcher at the Asian Human Rights Commission. “Once started, I think it will run smoothly. The government cannot afford to have such a bad perception of a newly created stock exchange.”

--With assistance from Daniel Ten Kate in Bangkok, Caroline Connan in London and Saeromi Shin in Seoul. Editors: Stephen Foxwell, Jerrold Colten

To contact the reporters on this story: David Whitehouse in Paris at dwhitehouse1@bloomberg.net; Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editors responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net; Jerrold Colten at jcolten@bloomberg.net