Low trade volume no threat to new IPOs: Economist

Low trade volume no threat to new IPOs: Economist

The low trading volume of stocks in the Lao Securities Exchange will not be an issue for new companies wishing to issue Initial Public Offerings (IPOs), according to a senior economist.

The Lao stock market building in Vientiane.

Dr Mana Southichack made the comment yesterday amid widening speculation that the unusually low trading volume of stocks in the Lao market, indicating Lao people are not interested in investing in stocks, would pose challenges for new public companies looking to issue IPOs.

According to a report from the Lao Securities Exchange, the average trading volume of stocks is about 160,000 a day, well below the 200,000 a day it expected.

ETL public company decided to postpone issuing its IPO at the end of last year, citing that the global economic situation had created unfavourable conditions for it to sell its shares to the public. EDL-Gen also postponed the issue of additional shares last year.

Dr Mana, who is Managing Director of the Intergro Company, a business and economics consulting firm in Laos, said he had been keeping a close eye on stock trading at the Lao market and believed the low trading volume was not an indicator that Lao people are not interested in stock investment.

He explained that it is more a case of some investors, particularly those who purchased stocks at a high price at the opening of the Lao stock market, not wanting to sell at what they consider a loss.

A number of Lao investors believe that the high original stock prices will continue to rise, Dr Mana added.

Many Lao people also do not want to sell their stocks as they purchased them as long-term investments and expect to receive dividends considerably higher than the deposit interest rates at banks, according to stock market officials.

Dr Mana said he would not rule out Lao people flocking to buy new IPO shares as many would see the prices in the primary market to be very cheap, allowing them to resell the stocks at a higher price in a secondary market.

He said the current low price of EDL-Gen and BCEL shares presented good opportunities for people to invest.

Dr Mana explained that, unlike in many countries, the low price of the shares is not a good indicator of the Lao economy as only two companies are listed in the market.

The investment value in the stock market also accounts for only a small portion of the GDP, he added.

The economist said that in many countries, fluctuations in the price of shares reflect the confidence of investors in buying stock.

He also said that the lower price of shares should not cause any problems for the government's management of foreign reserves, adding that foreign investors have limited rights to purchase shares in the Lao stock market.

vientiane times