The Lady and the Fund Managers

Myanmar's stock market is on the cusp of opening the door to foreign investors. They could be forgiven for not rushing in.
Aung San Suu Kyi, Myanmar's de facto leader
Aung San Suu Kyi, Myanmar's de facto leader

Aung San Suu Kyi had little time for charming foreign investors when in opposition.

In The Lady and the Generals, biographer Peter Popham recounts her 'recklessly rough' approach to foreign luminaries. This included legendary fund manager George Soros, who had helped bankroll the democracy movement in Myanmar.

Soros, not usually a man to be kept waiting, had to lobby for months for a meeting with the Nobel Peace Prize-winning opposition leader. He found his offers of hospitality rebuffed when she visited the United States. We are assured that, when he finally sat down with Suu Kyi, it 'did not go well'.

Investors are getting a much friendlier treatment now. The government of Suu Kyi, whose National League for Democracy party ended more than fifty years of military rule in the 2015 election, has set to work removing restrictions on foreign investment in country.

The bulk of these changes are included in a revamp of the Myanmar Companies Act, which will slash red-tape for local companies at the same time as opening the doors to foreign competition. The act, which was approved by the executive branch in early January, is now going through parliament.

The main objective is to bring more foreign direct investment into the country. After hitting a record of $9.4 billion in the fiscal year ending March 31, 2016, FDI has flagged. It was at around $5.8 billion by the end of January.

But as well as bringing in FDI, the regulatory changes will also give foreign equity investors access to Myanmar's nascent stock market, where just four companies are currently listed.

Those investors will face a vastly different environment than the multinational corporations now eyeing the country.

The mirror image

In a broad sense, some of the problems that Myanmar faces have already been tackled in the stock market.

There is little doubt that solving infrastructure problems on a national level is several magnitudes harder than doing so in the stock market. But Myanmar's Securities Exchange Commission, approaching its second birthday this week, has done an admirable job.

The stock exchange was founded in December 2015, one of the last acts of the outgoing military government. The four companies listed certainly makes the Yangon Stock Exchange market small in global terms, but it does put the country even with Cambodia, which has had a stock exchange since February 2010.

Daiwa Institute of Research, an investor in the exchange, teamed up with local tech firm ACE Data Systems to build Yangon's trading system. The exchange's website is also remarkably easy to navigate compared to some Southeast Asian exchanges, with English-language menus that take one to regulatory updates, disclosures, and interactive charts.

In stock market terms, things are impressively transparent. Myanmar's government, on the other hand, was gently chided in the most recent World Bank report for poor reporting standards and “concerns” over the clarity of policy priorities.

The numbers game

But the economy has got a crucial trump-card that its stock market lacks — an impressive performance. The Asian Development Bank thinks the economy will have grown 8.4% by the end of this fiscal year on March 31. The stock market performance has been far less impressive.

Of the four companies that have sold shares on the Yangon Stock Exchange, three are trading below their listing price. The latest addition to the market was domestic lender First Private Bank, which listed on January 20. Its shares closed almost 9% below their listing price on Monday.

Opening the market to foreign investors can certainly help improve this performance, but a look elsewhere implies they are feeling cautious. Yoma Strategic Holdings derives the bulk of its revenues from Myanmar and is listed in Singapore, making it a simple proxy of foreign investor appetite for the country. The stock traded up early last year, but has flatlined for the last six months and is well below its five year high.

There is little doubt that the situation will improve if Myanmar's economy continues to grow, especially if that FDI starts to come in. But for now, it remains to be seen quite how excited foreign equity investors will be to get access to a country that offers great promises, yet also faces some very real challenges.

It is time to lay on a charm offensive. Perhaps it wouldn't hurt to give George Soros a call.


¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media