Share market not ready for foreign investors
KATHMANDU,DEC 22:
The possibility of entry of foreign institutional investors in the capital market looks slim in the current archaic condition of the market, according to a study of the capital market regulator.
The internal study to assess the prospect for their entry in the capital market conducted recently by the Securities Board of Nepal revealed that the securities market has to be more mature, professional and equipped with technology to allow foreign institutional investors to trade from remote workstations as well.
“Even if we let foreign institutional investors trade in the share market, the current infrastructure and other fundamentals could not support them,” informed an official of Securities Board of Nepal involved in the study.
“The foreign institutional investors choose to invest in the share market that will ensure safety of the investment and provide swift entry and exit, along with the presence of necessary infrastructure like central depository, remote trading among others,” he said, adding, “but our trading and settlement system is yet to be dematerialised, brokerage services are also not professional enough to cater to the foreign institutional investors making it a remote chance to attract them.”
The capital market regulator is taking Non Resident Nepalis (NRNs) investment in the stocks as a trial before deciding to introduce foreign institutional investors.
The capital market and financial market regulators are preparing to allow NRNs to invest in the stock market through mutual funds via their recently formed NRN’s investment company. Global Capital Investment — the investment company formed by Non Resident Nepalis (NRN) to invest in Nepal — has already collective fund worth Rs 500 million.
“If the legal hurdles could be reduced, it this is the right time for any foreign institutional investor to enter Nepali capital market provided we can meet the technical requirements,” opined president of Stock Brokers Association of Nepal Anjan Raj Paudel.
When the share market was booming about three years ago, foreign institutional investor from Singapore and Hong Kong had approached to inquire about the possibility of investing, but the legal and technical provision did not allow them to enter, Poudel added.
Nepse’s trading system has become outdated and is in urgent need to get upgraded to allow online trading. Moreover, the central depository system -CDS and Clearing has come into existence but yet to start operation.
Likewise, mutual funds and credit rating agency that are in pipeline also have to be operational to attract foreign institutional investors.
Even if the stakeholders upgrade the trading system, and credit rating agency, mutual funds, central depository start operation, the bad corporate governance and unprofessional behaviour displayed by the listed companies will pose as discouraging factors for foreign institutional investors. “Weak regulatory framework, over-interfering public directors, disregard for disclosure and financial reporting and overwhelming mandatory presence of financial institutions might also pose as deterring factors,” he said.
Source: THT
