02:09 - Source: CNN
Cambodia stock market opens

Story highlights

The Cambodian Stock Exchange started trading with one company on April 18

There are neither capital controls nor requirements for joint ventures

But despite incentives, the stock exchange faces many challenges

Editor’s Note: Pauline Chiou is a CNN anchor/correspondent based in Hong Kong. Follow Pauline on Twitter @PaulineCNN

Phnom Penh, Cambodia CNN —  

I visited the Cambodian Stock Exchange (CSX) last September in the heart of Phnom Penh. It had officially “opened” a few months prior but no companies were listed yet. The trading room was filled with new desks and computer monitors, waiting for someone to power them on.

Fast forward seven months and the stock exchange is now starting to breathe signs of life – there is now one company trading on the exchange. On April 18, the Cambodian Stock Exchange started trading with the IPO of the state utility company, “Phnom Penh Water Supply Authority.”

As a frontier market, Cambodia is still a work in progress. The government is trying to woo international investors by throwing open its doors and virtually saying, “We will make it easy for you.” There are no capital controls. No requirements for joint ventures. International companies can own 100% of their local business in Cambodia. The only major restriction is on foreign ownership of land. With a young labor force that commands cheaper wages than China, Cambodia has been looking attractive to foreign companies. Despite these incentives, there are many challenges for the new stock exchange:

Challenge #1: Short-term Investors

Even with just one company trading, the exchange generated a lot of interest among local and foreign investors. In the first three days of trading, the share price for the water utility rose 60% above its IPO price, but by the following week, short term-investors started selling to take in profits. The stock price came down substantially. “It’s kind of a typical phenomenon for a new exchange. It happened in the Laos market and Vietnam’s market. It is no surprise to me,” says KT Han, managing director of Tongyang Securities which was the sole underwriter of the IPO. “Some people made a 50% profit within a few days. They tend to be short sighted by this fluctuation in price and it will take some time for them to understand the market and make long-term investments.”

Challenge #2: More Companies Need to List

You need more than one company to make a stock exchange thrive. Laos’ stock market opened in January 2011 and it still has only two companies trading. The volume of trade is fairly stagnant. That’s exactly what investors don’t want to see with the Cambodian Stock Exchange. Another company, Telecom Cambodia, is preparing its IPO later this year.