Chapter 6 - Capital Market Development

Summary

The “Financial Sector Development Strategy 2006-2015” envisages the development of a sound, market-based financial system. Capital market and banks function complementarily to enhance the efficiency of the financial system which is crucial for stimulating economic growth. The vision for capital market development is to have an efficient and transparent capital market structure with a critical mass of issuers for mobilizing long term investment funds. The market will address risks, remove obstacles to financial development and support risk management and financial resource accumulation and allocation.

The development of the securities market will yield the following benefits:

1. • In addition to bank deposits which are basically held on short-term basis, capital market will increase the mobilization of savings, by providing an array of attractive saving instruments, which can be used for financing long term investments. Capital market also provides a convenient mechanism for channeling foreign savings into portfolio investment. At present Cambodia can only attract foreign direct investment since capital market and the associated securities exchange infrastructure do not exist. Foreign portfolio investment will become a possibility once the securities exchange is established and rules are framed for foreigners to invest in Cambodian securities onshore.

2. • It will lead to a more rational allocation of resources because funds, which would otherwise be spent on consumption, or kept in idle demand deposits with banks, would be mobilized and redirected to promote productive business activities;

3. • Investors are usually reluctant to participate in long-term investment projects, even those with high return. With a capital market, investors can stay liquid while investing long term.

4. • Securities market improves corporate governance through information disclosure requirements which ensure better management standards and efficiency;

5. • Public companies owned by a multiple of stock holders through the stock exchange and subject to regulation tend to have a better record of good management than privately-held companies;[…]