After strong performances in 2009 and 2010, the Port Moresby Stock Exchange (POMSoX) experienced a tough 2011, as did many bourses around the world.

PNG’s stock exchange performance since 2006. While 2011 was a tough year for POMSoX, the local bourse, the longer-term trend is encouraging.

The Kina Securities Index, which measures the health of PNG’s stock exchange, reported a 22.21% fall in 2011, but this fall should be seen in context. The region’s major exchanges—the Nikkei (-17.63%) and Hang Seng (-19.81%)—also fell over the same period.

With many POMSoX stocks dual- or triple-listed on overseas markets, the Kina Securities Home Index, which records the performance of those companies listed only on POMSoX, arguably gives a better idea of what’s going on in Papua New Guinea itself. Over the year, home stocks lost only 1.86% value, showing much greater resilience than international stocks.

POMSoX’s Geoff Mason

Similarly, Kina Asset Management Limited, PNG’s only listed investment company, reported positive growth in its domestic equities in its half-yearly results to June 2011, while its overseas investments experienced a decline.

‘Gone are those times where we were delivering high double digit returns to our members and experiencing exponential growth in our portfolio,’ observes Ian Tarutia, Chief Executive Officer of superannuation company NASFUND. ‘Having said that, there are growth opportunities in the PNG economy.’

Modernising the exchange

There are currently 20 active stocks listed on POMSoX, with only one new listing during 2011, Kina Petroleum Limited. Mining and petroleum companies dominate its listings, with financial services, agribusiness, retail and aviation also represented. In some markets, the absence of new listings might be seen as a sign of negative business confidence, but General Manager of POMSoX, Geoff Mason, says that’s not the case in PNG.

‘While we would like to see more listings and we encourage companies to speak to us about the benefits of a listing, at present the existing good, non-listed companies are cashed up and don’t need to list to raise additional capital. So the lack of new listing should not be seen as as a sign of negative business confidence, it is more of a case that the need to list is currently not high on their agenda,’ he observes.

That said, POMSoX is putting in place measures that will make it easier and more attractive for local companies to list on the exchange, following a 2011 review of the exchange by KPMG. Listing and Business Rules largely inherited from Australia’s ASX are being updated and tailored more specifically to PNG needs.

‘We’re also upgrading the trading system and implementing an electronic settlement system, which should be operational by the end of 2012,’ says Mason.

The Exchange also sees education as a role it has to play in the market place. As such, POMSoX will continue to provide investment seminars to all regional areas of PNG to help the people understand the benefits of investment.

Secondary bond market?

Alongside the strengthening of the local exchange, the country’s central bank, the Bank of PNG, has a capital markets development program which aims to strengthen the governance of capital markets in PNG and possibly introduce a long overdue secondary bond market. At present, the only bonds available are government bonds offered through the Bank of Papua New Guinea, and the absence of a secondary market is considered a constraint on the country’s credit rating.

‘Private bond issues would provide PNG companies with another way to raise capital in kina [PNG’s currency],’ explains Mike Ryan of BSP Capital, one of the two licensed stockbroking companies in PNG (the other being Kina Securities).

‘I think a secondary bond market would be good for the country,’ says Vishnu Mohan, Chief Executive Officer, Pacific Northwest for ANZ. ‘Some of PNG’s top companies are really blue chip companies by local standards. I see no reason why they can’t have their own bond issues. That’s what happens in most mature markets.’

This article originally appeared in Business Advantage Papua New Guinea 2012/13 (published May 2012).