It may not be necessary for Fiji to have a stock market due to the size of our market and the falling of liquidity.
This was revealed today by Griffith University, Australia's Academic Parmendra Sharma at the Bank and Finance in Fiji symposium at the University of the South Pacific.
Speaking on a review of the role of stock markets in developing economies, Sharma said size and liquidity matters for effective operations.
He said South Pacific Stock Exchange (SPSE) has remained very small and extremely illiquid for 30 years.
“Stock markets may not really be good alternatives to banking systems,” he said.
This is because of the inability of diffuse shareholders to monitor insiders, large shareholders may exploit minorities and large investors might take on bigger risks.
Also, he said market power of concentrated ownership might corrupt political systems and distort public policies.
In addition, Sharma said stock markets may not necessarily foster economic growth.
“SPSE is unprofitable and cannot operate independently!”
He said SPSE depends on government grants for survival and without the grants, they will net losses.
Sharma’s presentation reveals that in 2010, net loss $3,084; revenue did not reduce significantly due to the increase in Government Grant from $250,000 to $300,000; 2011 net loss $4,784.
He added SPSE would not (be) in a profitable position without (government’s) assistance.
For SPSE, he said it has an unpromising future.
According to his presentation, the Exchange is committed to improve its market performance and the liquidity of stocks as a requisite to meet the challenges ahead.
To achieve this the exchange needs to ensure that adequate supply of stocks are available in the market on one hand and has to generate demand in the investors to buy these stocks on the other.
“For a small developing exchange like ours, this is a mammoth task and it places an enormous strain on our (already) constrained resources.”
SPSE in a presentation reveals overall liquidity in the market remained low due to low percentage of free float in these securities
“We have a longing to develop an investment culture in Fiji and bring the stock market initiatives within the reach of retail investors.”
Sharma said there is a dying need for more education and workshops on stock markets to counter this issue.
However, he said SPSE is doing a great work but needs to think outside the box.
He added, they cannot do much since it is already running, but "we need to look for ways to assist the stock markets".
Sharma encourages good and strong banks in Fiji.
By Ropate Valemei