Thursday, 12/10/2015 15:47

Myanmar opens stock exchange as rehabilitation continues

Former pariah state Myanmar will launch its first stock exchange on Wednesday, marking the next stage in the rehabilitation of a country basking in the glow of strong foreign inflows and a new pro-business regime.


Reportedly a $24 million investment, the Yangon Stock Exchange (YSX) was founded by the state-owned Myanmar Economic Bank,Daiwa Securities and Japan Exchange Group, a company that operates the Tokyo Stock Exchange.

The launch marks yet another milestone in the rapid modernization of Myanmar, which has been opening up its economy following decades under military rule. Since Western sanctions were lifted in 2013, foreign direct investment (FDI) hit a record $8 billion during the 2014-2015 fiscal year as multinationals including Coca-Cola, Telenor, Colgate Palmolive, and Mitsubishi bet on an emerging consumer boom.

The middle-class and affluent consumer (MAC) population is expected to nearly double from 5.3 million in 2012 to 10.3 million in 2020, according to Boston Consulting Group.

Moreover, November's general election—the first free and fair vote in decades—saw the military junta respect the victory of Aung San Suu Kyi's National League for Democracy (NLD) party, paving the way for structural reforms in key areas such as manufacturing and infrastructure. Back in 1990, the NLD also won a landslide election but the military annulled the results.

"In the longer term, we hope that the stock market can lead to the development of a debt capital market, which may be of interest to even international companies," Petter Furberg, chief executive of Telenor Myanmar, told CNBC. The bourse could also enhance the profile of home-grown Myanmar companies and subsequently, lure talented nationals currently working abroad, he noted.

However, it remains to be seen whether the rising optimism will translate into a healthy stock exchange, at least initially.

"The opening of the YSX is not going to be a giant leap forward, it's just a small step in the right direction," remarked Adam Jarczyk, Asia Pacific practice leader at strategy consulting firm Frontier Strategy Group.

For stocks markets to play a role in the economy, rules and regulations need to be put into place, he explained. "Several areas in Myanmar still remain nebulous; there aren't any rules on disclosures, shareholder voting or annual general meetings (AGMs)."

Furthermore, initial public offering (IPO) requirements seem stringent for a market that has suffered years of dictatorship.

"Companies need two years of profits as per Myanmar's financial standards, prove they are tax compliant and have 100 shareholders," said Jarczyk.

There needs to be greater clarity on the listing process, including transparency and corporate governance requirements, echoed Nyantha Maw Lin, managing director at the Myanmar office of corporate advisory firm Vriens & Partners.

Since the Yangon Stock Exchange will likely only draw a handful of companies at the start, there are concerns that it could suffer the same fate of its neighbors. After launching in 2011, the Cambodian Stock Exchange (CSX) only has two listed companies to date while the Laos Securities Exchange (LSX) has a total of four listings. Both markets remain largely off the radar for investors due to their lack of liquidity.

"There are a relatively small number of public companies with heft in the [Myanmar] market, so there is unlikely to be a sudden jump in listings," said Lin. Larger companies with the resources to get listed aren't necessarily short of capital so they may not see any immediate worth to get on the YSX, he added.

Deputy finance minister Maung Maung Thein told local media earlier this month that he expects at least six or seven companies to join the YSX at the start, including Myanmar Citizens Bank, Myanmar Thilawa Public Company and First Myanmar Investment.

Because only local companies are allowed to list with all transactions conducted in local currency, the kyat's 20 percent depreciation against the greenback this year isn't expected to impact listings. Laws to allow foreigners invest in stocks aren't in place as of yet.

Vietnam's Ho Chi Minh Stock Exchange remains the region's most robust frontier bourse with over 300 stocks and a combined market capitalization of $19.2 billion since launching in 2000. Thein expects the YSX to catch up with Vietnam's within three years but experts say that's too ambitious.

Myanmar currently suffers from a mismatch between expectations and reality, according to Jarczyk.

The entire regulatory regime is still being developed and the government is sprinting to put this in place for the entire economy, so the stock market will be part of a much later story, he explained.

"Everyone wants to believe capitalism will take off in Myanmar but the reality is that the economy remains very underdeveloped, and there isn't a clear need for an equities market at this time."