The world’s newest stock exchange is set to open for trade this week in communist Laos, which hopes its cautious embrace of global capitalism will spur development of Southeast Asia’s smallest economy.
It is the latest experiment in freewheeling finance for a country that is officially socialist but in reality began tiptoeing away from a Soviet-style command economic system in the 1980s with free-market reforms.
The landlocked former French colony of about six million people is seeking to reduce its dependency on agriculture and foreign aid, helped by growing exports of minerals and electricity from hydropower generation.
It is no coincidence that one of the two companies that will initially be listed on the Lao Securities Exchange when it opens for trade on Tuesday is a spin-off of state-run energy giant Electricite du Laos (EDL).
The chairman of the Lao Securities Exchange (LSX), Dethphouvang Moularat, is confident that the bourse’s opening will be a milestone for the impoverished nation, where the majority of people still live on less than two dollars a day.
“It will help the economy a lot,” he told AFP in an interview at the stock market’s modern, glass-fronted headquarters in the capital Vientiane.
He said the stock market would complement an existing foreign exchange market, giving firms access to vital capital to expand.
“The stock market will be an expressway for funds,” said Dethphouvang, who expects the bourse to generate strong interest among both investors and private companies looking to drum up cash.
While Laos has been a one-party state since 1975, it has followed a similar path as China and Vietnam to a “socialist market economy”, combining central planning with market-oriented reforms.
In June 2009, US President Barack Obama declared Laos had “ceased to be a Marxist-Leninist country” and removed it from a trade blacklist, citing its commitment to opening up its markets.
For its new exchange, Laos sought technical and financial support from South Korea — whose own stock market operator has a 49-percent stake in the LSX — as well as advice from neighbouring Thailand.
Along with EDL-Generation Public Pcl — which was spun off in December from state-owned EDL to handle power generation — state-run Banque Pour Le Commerce Exterieur Lao will also debut on the bourse.
“The government wants these two companies to boost investor confidence about the market’s benefits,” Dethphouvang said.
Novice investors have eagerly signed up for shares in the two state-owned enterprises in the country’s first-ever initial public offerings.
Dethphouvang expects that between three and five private firms will also be listed on the market by the end of this year.
But experts do not expect a boom in trade in Laos stocks in the near future, particularly among foreign investors. They say only a handful of state-owned enterprises meet the regulatory requirements for listing on the bourse.
“Thus far global investor interest in Laos has been restricted mainly to natural resource sectors, such as mining and hydropower. I don’t see that changing soon,” said Nick Owen, an Asia editor at the Economist Intelligence Unit, the research arm of London-based publication The Economist.
“Laos is one of Southeast Asia’s poorest countries, with income levels well below those in neighbouring Vietnam, and investment opportunities are likely to remain limited for some years yet,” he said.
“Still, foreign investment will increase and the country’s eventual accession to the World Trade Organization is likely to prove especially significant.”
Dao-Heuang Group, one of the biggest private companies in Laos, with interests in imports and exports, real estate and coffee, is among those eyeing the new bourse as a source of funds.
“We are in the process of restructuring so we will show transparency before listing in the market so investors will have confidence in us,” said general manager Sisouphonh Sihalath.
He said the company might not list all its businesses but instead focus on the coffee and duty-free retailing divisions.
“We expect by mid-2011, Dao-Heuang will be the first private company to be listed on the LSX,” he added.