JMP Securities has acquired Bank South Pacific’s stockbroking business in Papua New Guinea. Co-founder and Managing Director Lars Mortensen tells Business Advantage PNG he sees great opportunity for growth.

Having acquired Bank South Pacific’s stockbroking business in 2019, JMP Securities commenced trading on Papua New Guinea’s stock exchange, the PNGX, on 6 October 2020, with the goal of being more than just a trader in listed shares.

Co-founder and Managing Director Lars Mortensen says brokers in PNG have perhaps been ‘order takers rather than market makers’ – a strategy he is looking to reverse.

‘[Our] approach is to be a more active participant; to seek out markets, to get clients to be aware of the need for both buyers and sellers to move on prices. More active intermediation (working as a go between between buyers and sellers).’

JMP is looking to create new investment products in PNG, such as fixed-interest unit trusts.

‘A way of getting mass-market participants into the fixed interest market, we think, is to create an investment product that effectively rolls fixed-interest assets into portfolios (combining a number of fixed interest offerings, or products, which pay higher rates of interest than bank deposits into one “portfolio”),’ he tells Business Advantage PNG.

‘The biggest fear for investors, particularly small investors in PNG, is the lack of liquidity in the market.’

‘That will give big and small investors access to a portfolio of fixed interest instruments rather than buying individual securities,’ says Mortensen. ‘The biggest fear for investors, particularly small investors in PNG, is the lack of liquidity (ability to sell before maturity) in the market.’

Mortensen believes there is ‘excess liquidity in the banking system’ (funds in bank deposits receiving low interest that could be placed elsewhere for higher returns). ‘There is probably K3 billion there to be picked off and to be more profitably deployed,’ he contends.

He acknowledges that it ‘will take time to get bonds actively traded’ on PNGX but the unlisted market activity is already growing in Papua New Guinea.

‘We have ramped up our activities in the over-the-counter (OTC) secondary market for bonds (over the counter markets are decentralised and not on an exchange). We are regularly now doing multi-million kina trades. That shows that there is a real pent-up demand for trading in fixed interest but there are hurdles for getting it fully exchange-traded.’

New listings

There has also been a severe lack of companies listing on the PNGX in recent years. Indeed, the last two new listings have been Kina Petroleum’s back in April 2019 and, before that, Kina Securities’ in 2015.

Mortensen says he is looking at three-to-five Initial Public Offerings (IPOs) but they will have to be staged.

‘Capital is concentrated in PNG, so you can’t get a serious IPO off the ground if you don’t have major institutional support and there are only two large [superannuation funds]. You have got to stagger it a little bit. But we have a roster of three very hot companies that tick all the boxes.’

‘There is potentially billions of kina in the banking system that could have a better home in tradeable securities.’

Taking a more active role is central to the company strategy, Mortensen explains.

‘We are going to try to communicate with our clients. In the New Year, we will initiate active research on stocks in the exchange. Research is an important part of our investment, including macroeconomic research and a quarterly economic bulletin, outlining our own view and forecasts on the PNG economy.

‘You have got to have things to talk to your clients about, to convince them to take money out of the bank and put it into a riskier, but potentially more lucrative, product.’