“Tired of fusty old outposts such as Bangladesh, Nigeria or Mongolia? Try the world's newest—and possibly smallest—stock market, the Laos Securities Exchange.”
The opening of the Laos Securities Exchange is interesting for a few reasons. First, as the article points out, Laos is best known for being the most heavily bombed country per capita and an exotic vacation destination. Second, and more importantly, Laos is a Communist country. China may have a few exchanges of its own, but its population is also much higher than six million. It will be interesting to see the extent to which Laos’ Marxist leaders are willing to relinquish control of state-controlled business to the open market.
The addition of this exchange will hopefully bring new capital to Laos, which will in turn increase productivity and the standard of living. This is, however, contingent the country’s ability to effectively deploy this newly acquired capital. This is one source of risk, which is true in most emerging markets. The efficacy of capital deployment is simply unknown. This risk is one factor that contributes to the higher rate of returns in emerging markets.
Another factor attributing to high risk of emerging markets is their legal frameworks. In the United States we tend to take for granted the protections investors enjoy. The Securities Act of 1933 and the Securities Exchange Act of 1934 have established an legal essential framework that provides investors will a high level of transparency. In addition to this, there are legal frameworks that address corporate governance. The Delaware Court of Chancery’s well-developed body of case law provides investors and management with clearly defined legal parameters for the corporation. These two legal frameworks offer investors protections that lesson risk. Emerging markets are just that, emerging. These types of legal frameworks have yet to be developed in markets like Laos. The returns may be higher, but there is a reason.
Tweet
No comments:
Post a Comment