Papua New Guinea must promote its financial system to the world, say financiers

Leading financiers have called for better international marketing of the nation’s financial system and assets. They told the Business Advantage Papua New Guinea Investment Conference that it is an important step towards creating more mature financial markets.

Panelists at last month’s PNG Investment Conference From left to right: PacWealth’s Eric Kramer, Fat Prophet’s David Lennox, Pacific Balanced Fund’s Kennedy Wemin and Nambawan Super’s Stephen Nash. Source: BAI

One potential area where markets could be expanded is government bonds. PNG’s one year Treasury bills are yielding over 8 per cent, according to the latest Kina Securities figures. This compares with 1.76 per cent in Australia and 1.35 per cent in the United States.

‘Government bond auctions at the moment are organised in such a way that nobody in the rest of the world actually knows about them, or can participate,’ observed Eric Kramer, Chief Executive of PacWealth Capital.

‘Two per cent of US$100 billion is money.’

‘If you put that on the electronic platform, with electronic settlement, then the world can see it. Papua New Guinea is very much an island and there are very few links to the outside world—especially the financial world.

‘Financial market reform is definitely an element that we should look at; make a big jump from the nineteenth to the 21st century.’

Allocations

PacWealth’s Eric Kramer Source: Business Advantage International

Kramer said large international funds have significant capital to invest in developing markets like PNG.

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‘There are pension funds in the world that have strategic asset allocations—it might be two per cent—for foreign tier markets. Two per cent of US$100 billion is money.

‘But, at the moment, Papua New Guinea is not represented in any foreign tier market index, and so that money cannot find PNG. We need to fix that.’

Kramer says PNG interest rates are attractive. ‘There’s a search for yield going on in the world with interest rates, in many cases, in negative territory. At present, you know, we get yields here for some of the bonds of 12–13 per cent.

‘Despite the currency and sovereign risks, investors are very much willing to have a look at it.

‘But there needs to be that infrastructure; there needs to be a platform, it needs to be electronic, there needs to be a custodial arrangement.

‘Australia’s superannuation funds currently have over A$2.3 trillion in assets (K80 trillion).’

‘It also needs a regulatory framework. That’s something that you do need to think about because you don’t want to open up these already fragile markets to flight capital, for instance. ‘

Australian super

Stephen Nash, Chief Investment Officer for Nambawan Super pointed to Australia’s superannuation funds as a potential source of capital.

Australia’s superannuation funds currently have over A$2.3 trillion in assets (K80 trillion), according to the Association of Super Funds in Australia (ASFA).

‘A lot of the super funds in Australia are solely focused on the big picture—developed markets—where really there is no growth.

‘A global investment bank deal panel should be appointed.’

‘If you could invest in PNG for 30 years you’re going to make a lot of money. But you have to be on the ground, you have to be involved.’

Nash agreed that introducing electronic settlement is important. He pointed to how Australia promoted its financial markets.

Nambawan Super’s Stephen Nash  Source: BAI

‘Australia is now one of the most liquid bond markets anywhere in the world.

‘That didn’t happen overnight, it took a lot of time and people going around, year after year, knocking on doors and talking to people.’

Panel

Nash argued that a ‘global investment bank deal panel’ should be appointed and remunerated. It would be tasked with selling PNG financial assets to the world.

‘These guys will go out with the Treasury and Bank of PNG and talk to investors and engage with investors.

‘At the moment, we’ve got a bit of an issue with the currency. A lot of investors will look through that if they’ve got a very long time horizon.

‘But they have to be engaged with. They need to be called when something happens, when there’s a headline.’

Kennedy Wemin, Chief Executive of Melanesian Trustee Services (MTSL), said another potential way to market PNG’s financial system is with conferences. He said there are about five or six significant conferences on PNG annually, most of which are in Australia.

‘Why don’t we take these conferences to Asia?’

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