Myanmar's exchange takes its time learning to walk

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By:
Eric Ellis
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Three years after it was founded, Yangon Stock Exchange is marooned, which doesn’t augur well for developing the capital markets.

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Myanmar’s stock exchange could hardly be in a better location. The imposing stone building commands a corner on one of downtown Yangon’s busiest intersections and was originally the central Reserve Bank of India’s branch when Burma was a dominion of the British Raj. 

That should put it at the heart of a commercial life re-ignited by Myanmar’s recent reforms. On an opposite corner, guests bustle through the business-centred Pullman hotel, part of the gleaming Centrepoint Towers office complex. 

Yangon’s riverbank, humming with trade, is steps away to the south. The downtown headquarters of Myanmar’s biggest bank, KBZ, is 100 metres to the west along Merchant Road, while the head office of the country’s second-biggest bank, Aya, is a block’s walk to the north.

But magnificent as it appears, the Yangon Stock Exchange (YSX) does not inspire much confidence in the future of Myanmar’s capital markets. Indeed, it might be a case of build it – and they won’t come.

It started life in 2016 with two listings. One year later there were just four firms listed on the exchange, with a total of 2.71 million shares worth K22.13 billion ($14.6 million) changing hands during the year. 

Last year, the number of listed firms rose by 25% or, put another way, by just one, when a small communications equipment vendor from Shan State, TMH Telecom, went public. 


Capital markets don’t happen overnight 
 - Thura Ko, YGA Capital

This rare boost in listings did little for YSX business, however. Trading volume for 2018 actually fell to 2.36 million shares, worth K11.5 billion. One reason for the lack of activity is evidenced in YSX’s own rules, which require a seven-step process that it says will take at least 18 months. And if you were seeking to invest in that new TMH listing, you had better look beyond its website for more information. Its three pages supposed to be detailing its financials say “lorem ipsum”, the typographer’s Latin used as place-holder text.

The YSX’s benchmark market indicator, the Myanmar Stock Price Index or Myanpix, reached a high of 1,322.58 two days after the market launched on March 25, 2016 from a base of 1,000 points. In early March 2019, it plumbed an historic low of 368.99.

When Asiamoney slipped in past two dozing security guards during trading hours on a February week day, there was no one on the trading floor. The listing screen didn’t update for the simple reason that there was nothing to update it with. 

Visitors in search of something – anything – to do could flick through a bookshelf containing various 10-year-old local and international business magazines, Thomas Piketty’s ‘Capital in the 21st Century’, and a handful of dusty texts – notably the Bombay-published ‘Burma’s currency and credit’ from 1953, a thesis for a Yale doctorate adapted by a then-economics lecturer at the University of Rangoon. 

Beijing has not let go an opportunity to peddle soft power; it delivers copies of China Daily, published by the communist party, to the exchange, although the pile of propaganda remains untouched. 

On the walls around the trading floor, aphorisms uttered by Warren Buffett remind investors, if there were any, that the first rule of investing is to never lose money, the second rule to never forget the first rule. 

Other Buffettisms include: “I never invest in anything I don’t understand” and: “The stockmarket is a device for transferring money from the impatient to the patient.”

A functionary emerges from an office and Asiamoney asks if we could interview the exchange’s chief executive, Yin Zaw Myo, who is quoted on the YSX website as saying he would like the exchange to “become a new symbol of Myanmar’s development.” But we’re told he can’t spare the time to see us, which is fine as there doesn’t appear that much to discuss.

Tax amnesty

The YSX symbolizes the lack of development in Myanmar’s capital markets, which frustrates people such as Christopher Loh, the Singaporean chief executive of medium-sized local bank United Amara Bank. With incomes rising as the economy develops, he can see a lot of potential and has proposed to authorities an Indonesia-style tax amnesty to kickstart interest.

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Christopher Loh,
United Amara Bank

Loh says an amnesty would serve two important purposes: improve the state’s future tax take while encouraging locals to keep money inside Myanmar and to invest it locally instead of parking it in Singapore and Bangkok.

“If you have markets, and there’s no local money, where’s the money going to come from?” Loh asks. “You have to get momentum, and the key thing is bringing the money back into the country.”

For the moment, investible wealth in Myanmar’s emerging middle class tends to sit in two places, in fixed deposit accounts with banks, or in gold, as bars or bling.

“You can get 10% in a fixed deposit rate (for kyats). Why would you take the risk in the political uncertainty?” asks Loh.

Local press reports cite three companies making preparations to list this year. Loh says recent investment law reforms that allow foreign investors to take up to 35% of local companies should further spur activity in capital markets.

Banks are expected to be among the first of Myanmar’s largest companies to take advantage of the 35% shareholding reform. Asiamoney understands that Japan’s big three banks – SMBC, Mizuho and MUFG – are each circling a local bank, with SMBC believed to be in talks with KBZ, MUFG with CB Bank and Mizuho with Aya. 

Singapore’s sovereign wealth fund GIC Private Limited, formerly known as the Government of Singapore Investment Corporation, has met with Yoma Bank. Korean bank Hana, which has an interest in a Myanmar microfinance operation, is also in talks to buy into a Myanmar bank.  


Microfinance can only do so much 
 - Azeem Azimuddin, Aya Bank

A team from Bank of Ayudhya, Thailand’s fifth-largest lender which is controlled by Japan’s MUFG, is also “kicking the tyres’’ of medium-sized Myanmar Oriental Bank, local bankers say.

Azeem Azimuddin, Aya Bank’s CFO and adviser to the chairman, says the lack of functioning debt and equity markets is hampering the growth of otherwise promising startup businesses, particularly in technology

“Microfinance can only do so much,” he says. 

Basic transparency is a big issue in the stock market as orders are matched in batches rather than directly on live price matching, he adds. Azimuddin says regulators at the ministry of planning and finance and the central bank need to develop liquidity channels so private investors can work with banks to fund much-needed investment into infrastructure.

A functioning bond market, which he says could be worth more than $3 billion based on the current pool of government debt that has been issued, is long overdue, but “the simple act of transferring government bonds to the YSX was not a priority for the YSX or the regulators.” 

Critical capacity

"Capital markets don’t happen overnight,” says Thura Ko, managing director of local investment firm YGA Capital, which also represents international private equity investors in Myanmar.

Ko says Myanmar lacks critical capacity in the accounting and legal sectors for capital markets to function effectively. The handful of brokerage houses must learn discipline, he adds, “so when they recommend a stock, they better have conviction in their recommendation rather than: ‘It seems like a good thing (because) I know the guys behind it’,”.

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Thura Ko, managing director of local investment firm YGA Capital

Basic governance needs work too. 

Directors, Ko says, “must go through certification so that they will at least understand the basics of risks and managing other people’s investment in your company. You also need a very strong securities commission full of very skilled people who can read prospectuses, spot mistakes or a lack of disclosure.

“My gut feel is that the stock exchange, at some point, is necessary and helpful but some countries are just too small for a stock exchange” he adds. “If I were finance minister, I would say: ‘Maybe we don’t need a stock exchange yet. We can work through the Thai stock exchange and learn’.”

But while development at the YSX is stuttering, there has been increasing activity – and interest – in foreign investors accessing the Myanmar growth story. The problem for Myanmar and its capital markets is that it’s neighbouring Bangkok that is benefitting.

In January, Serge Pun’s Yoma Strategic Holdings raised Bt2.3 billion ($73 million) from Thai investors with the first foray by a Myanmar company into the corporate bond market. Guaranteed by the Asia Development Bank, the Bangkok-traded, five-year bonds have a fixed rate of 3.38%, a premium to Thai government bonds. The issue was two times oversubscribed.

The Myanmar government says it is committed to developing its own capital market infrastructure. Australian economist Sean Turnell, an economic adviser to Myanmar’s notional leader Aung San Suu Kyi, says a functioning stock market “is absolutely critical for economic growth and development”.

Turnell points to recent insurance sector liberalization, which he says “will create the foundations for just the sort of investor cohort the country needs across all the capital markets”.

Ko is convinced capital markets will evolve meaningfully: “These are baby steps, and you probably need a good five years of that for things to happen.”