Via The Financial Times, an article on Cambodia’snew stock exchange:

The debut of the Phnom Penh Water Supply Authority on Wednesday was the most exciting IPO in Asia this year. It marked the start of business on the brand new Cambodian Securities Exchange, underlining the extent of change in this fast-growing country once under the grip of the murderous Khmer Rouge. Plus, it’s already up 55 per cent.

Laos launched its exchange last year and Myanmar is now planning one as well. How much difference can a stock exchange make?

Cambodia’s economic growth is expected to be 7 per cent in 2013, up from 6.8 per cent last year, according to the Asian Development Bank. The IMF recently upgraded its view of how the country manages its public debt.

Since the fall 30 years ago of the Khmer Rouge – who killed nearly 2m of their own people and at one point abolished private property – Cambodia’s economy has grown steadily on the back of manufacturing, agriculture, and tourism.

“Investors are still looking for a place with top-line growth and there is that here,” said Scott Lewis, managing partner at Leopard Capital, a Cambodia-based investment group.

But the slow development of capital markets has been a challenge for local companies, he said. Bank lending remains very conservative, consisting mostly of export finance and traditional loans backed by real estate.

Equity capital tends to come from business owners or from stakes they sell to partners, mostly from other Asian nations, said Lewis.

Cambodia’s challenge will be to make its stock exchange attractive to investors and thus a viable way for companies to raise equity.

Since Laos launched its stock exchange early last year volumes have been low. Only two companies have listed and only two brokers sell their shares. Cambodia has been careful to line up IPOs. At least two more state-owned enterprises are expected to list this year. And it has licensed more brokerages to cover the companies. Seven groups are authorised underwriters and four are licensed as brokers.

If Cambodia succeeds it will offer a blueprint to Myanmar, another small frontier market preparinging to open a bourse. It recently confirmed that the Tokyo Stock Exchange would help with its launch.

But opening its exchange is just the first of many steps Cambodia must take to develop a capital market capable of boosting domestic companies, luring foreign investment and helping to privatise state-owned assets.

“I’m mildly optimistic about the fact that this represents a step in the development of capital markets here but there remain many steps to be done,” said Peter Brimble, the Asian Development Bank’s economist for Cambodia. “There are still big gaps on the local currency bond market, the local insurance industry, or provident fund or pension fund kind of activities…[those] have not reached very far.”

A step in the right direction, then, but only the first of many needed.