World - Nepal's isolation is its best defence (G.Read)

Prateek Pradhan

Stock markets around the world have been very volatile, with investors running for the hills. But high in the Himalayas, one small market holds its ground against the trend.

Nepal's isolation is turning into its best defence.

South Asia's poorest country has no international banks, no foreign investments in stocks, only basic financial rules and no direct connections to the international markets.

When falls in the US and European bourses pulled Asian equities down with them, Nepal's market was largely unaffected.

The Nepse (Nepal Stock Exchange) index stands at 850 points, down a comparatively mild 28 per cent from the end of August when it hit 1175.

The stock market is partly protected from external forces by government rules that prevent non-citizens from investing

According to government data, as of 2007 there were only 1,336 companies with foreign direct investment, which together brought in $595m.

"There is no trace of multinationals in this country, so the imminent global recession won't affect us," Kalu Gurung, chairman of Road Show Real Estate, Nepal's biggest property dealer, said.

Unlike many foreign peers, Nepalese companies have even been able to raise additional funds through share offerings in recent months.

Global Bank, a new commercial bank, launched an offering seeking $7.5m and attracted $1.2bn in subscriptions, and Clean Energy Bank found an eager market when it went public around the same time.

The succesful capital raisings bode well for the small country in between India and China that is trying to mend an economy hit by a decade-long and ultimately successful Maoist insurgency.

"We are not worried about the international situation. We are going to increase our total market capital from the current Rs200m ($2.5m) to Rs5bn in the next four years," Nirmal Pradhan, chairman of the Rajdhani Investment Fund, said.

However, Nepal's many overseas workers could bring the economic blues home with them.

"If Nepali labourers start losing jobs in Gulf countries, Korea and Malaysia, the effect will be seen in Nepal as well," Rabindra Bhattarai, a share analyst, said.

Bankers are hopeful that Nepal's economy will prosper in spite of the Maoist government because virtually no development work took place in the decade of insurgency.

"The continuous rise in the stock market and the boom in the housing industry seem to be the main investment instruments available in the Nepali market for the past coupleof years," Radhesh Pant, chief executive of Bank of Kathmandu and president of the Nepal Bankers' Association, said.

His optimism is shared by Binod Chaudhary, one of Nepal's leading businesspeople.

"Investors are mainly into real estate and stocks, and now they are moving into hydropower and cement," Mr Chaudhary said.

"So the future of Nepal is quite bright despite global gloom."