Investors seeking Asia’s next frontier may find inspiration in a French traveller born in 1826. Alexandre Mouhot is famous for his discovery of Angkor Wat, the temple complex in northern Cambodia.
Almost 300,000 tourists thronged to the site in 2022. The ruins may be ancient, but the city of Angkor is a recent discovery. It had been overrun by the jungle by the 1700s. The locals had forgotten about it. There was scant record of its existence.
Mouhot was fearless. He was trained in the natural sciences in France and Russia. At the age of 30, he travelled to Siam (now Thailand) after reading about its natural beauty. He wanted to collect zoological specimens.
His trip was largely self-funded. His request for funding had been rejected by the French government. In those days, travelling to Asia was so expensive that scientists needed patronage. This was long before low-cost carriers like Air Asia appeared.
Mouhot’s quiet manner belied an iron will. Despite a malaria epidemic, he made four trips to the interior of Southeast Asia. Cambodia was then part of French Indo-China. He stumbled on Angkor Wat in 1860 and instantly recognised its splendour. He described it as “grander than anything left to us by Greece or Rome”.
Angkor Wat had laid forgotten for centuries before its discovery. Its long hibernation could be a metaphor for Cambodia’s investment prospects. The nation of 16 million could be on the cusp of a boom.
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Vietnam’s economy shows signs of overheating. Thailand seems to have entered a middle-income trap. Cambodia’s economy seems poised to replicate the success of its neighbours.
Its GDP per capita of US$1,700 ($2,279) could double in the next decade. Cambodia has a low cost of manufacturing and ample supply of workers. It seems well stocked with two products that the world badly needs — rice and oil.
The rising prosperity has driven a consumer boom. Though a quarter of the population lives on less than US$1 a day, motorcycles are selling fast. Popular US-origin fast food KFC fried chicken is being consumed at three times the level of 2018.
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Investors are taking note. China, South Korea and Malaysia have been investing heavily. In 2022, foreign direct investment (FDI) was US$3.6 billion, which is 10 times higher than in 2004.
Phnom Penh, the capital, was once a sleepy town with just two traffic lights. Today, its business district looks like a smaller version of Shenton Way.
Rhodium Capital’s CEO Maninder Sabharwal has a distinct take on Cambodia’s prospects. Financial services are the best proxy for Cambodia’s ascent.
Sabharwal notes Cambodia’s progressive measures. Unlike its Asean neighbours that are vulnerable to currency depreciation, it has dollarised the economy. The currency is pegged to the US dollar. Even its rickshaw pullers dispense and accept dollars.
The other radical departure is that foreign investors can take majority stakes in banks. This has led to over US$2 billion of FDI in financial services. This means that the banks are better capitalised than other frontier markets.
Sabharwal should know. In 2020, he engineered a US$1 billion investment by South Korea’s Kookmin bank in a microlender Prasac. It was one of he largest investments in Cambodia’s history. The former Merrill Lynch banker could be Mouhot’s successor. By masterminding this transaction, he has put Cambodian banks on the map.
Investing in Cambodia is as hard as a trek to its jungles in the 1850s. There are no ETFs that track Cambodia Stock Exchange (CSX). The CSX trades just US$5 million, which is about 1% of the daily turnover of the Singapore Exchange S68 (SGX). The CSX has a long way to go. The market cap is just US$1 billion, which is 3% of its GDP. SGX’s market capitalisation is 1.5 times Singapore’s GDP.
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Some companies stand out. Telecommunications are an excellent proxy for a poor country’s emergence. CamGSM, the main cellphone operator, is trading at a steep FY2022 P/E discount to frontier telcos. Its profits have doubled in the last five years, as more Cambodians buy smartphones.
There are risks in Cambodia despite the recent buzz. It is ranked as the 30th most corrupt country in the world by Transparency International. The violence in the 1970s has depleted the country of many skilled workers.
Mouhot stumbled on a lost treasure in 1860 while braving malaria. Investors should not ignore Cambodia’s allure despite the dangers.
Nirgunan Tiruchelvam is head of consumer and internet at Aletheia Capital and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column. This column does not constitute investment advice of any kind
