Laos | Frontier Markets

Keep an eye on the Lao Security Exchange, which per reports hopes to raise $8bn in stock and bond sales in order to generate investment into the country over the next five years. The market opened last week and lists only two companies (Electricite du Laos Generation or EDL, a unit of the state-owned power producer which overseas investors are limited to a cumulative 10 percent stake, and Banque Pour Le Commerce Exterieur Lao or BCEL, the state controlled lender whose shares are verboten to foreigners), but as Templeton’s Mark Mobius noted, the admittedly woefully underdeveloped communist country and subsistence-farming oriented economy still offers “valuable opportunities” in industries from construction to banking as it increases its infrastructure investments. For one thing, future consumption will be underpinned by the purchasing power parity (PPP) rise of a population of roughly 7 million people, 40 percent of whom are under 15 years old and currently earn only $2.6 per day on average (as an example of how explosive this kind of low-base growth can be, consider Vietnam, where GDP based on PPP/per capita trebled since 1995 after rising roughly 5x since 1980). For another, the country has several heavy and hungry hitters with skin in the game–Beijing is covering 70 percent of the project investment for a high-speed railway link (to this end, watch if and when domestic Lao cement producers ever list shares or raise debt, since domestic cement is cheaper to produce but will be dear for years to come), for instance, while also building up resort, hotel and casinos along border areas for its growing base of tourists and also joint venturing in order to secure access to raw materials such as iron ore. Thailand, another source of tourism, will also purchase 95 percent of the electricty generated by the country’s initial $1.3bn hydroelectric and World Bank supported-dam, one of many dams which could ultimately allow Laos to become “Asia’s battery”. To this extent, “Laos is fast establishing itself as one of the principal territories in the South-East Asian region for large scale and innovative hydropower project financings,” according to Allen & Overy’s Ben Thompson. Finally, watch for a potential secular rise in mineral/metal prices (copper, gold and silver specifically) and its related dealmaking to support Laos’ future economic development.