Oct 3, 2011

Myanmar bourse gears for expansion from two listings

In a quiet room in an ageing office block of Myanmar’s commercial capital Yangon, a worker scribbles on a whiteboard beneath a row of out-of-sync clocks, updating prices in what could be the world’s smallest stock market.

Welcome to the Myanmar Securities Exchange. It is among the best-kept secrets of a repressive country hamstrung by Western sanctions and blighted by 49 years of military rule.

There is no trading floor, no flashing screens and no television show financial news channels. Just eight employees who handle over-the-counter transactions and manually update share prices on a whiteboard with a marker pen.

Set up 15 years ago, as a joint venture with Japanese broker Daiwa Securities, Myanmar’s stock market has attracted just two companies. This is an echo of broader problems in the resource-rich country that half a century ago was among Asia’s richest and is now one of its poorest.

But as Myanmar’s new civilian government presses ahead with reforms that could lead to greater political and economic freedom, and as China pumps in billions of dollars to develop its vast energy reserves, plans are afoot to expand.

Daiwa is working with the Tokyo Stock Exchange to establish rules and computer systems for a bigger stock market, according to a Daiwa spokesman. The plan expands on Daiwa’s 50-50 joint venture established in 1996 to set up the current exchange with Myanmar’s Finance and Revenue Ministry.

The biggest country in mainland southeast Asia has been one of the most difficult for foreign investors. The economy is restricted by sanctions, starved of capital and marred by mismanagement, but the eight-month-old parliament is stirring hopes of reforms that can slowly open access. Just over 50 years ago, the country, then known as Burma, was one of Asia’s most promising, the world’s biggest rice exporter and a major energy producer.

A senior official from the Ministry of National Planning and Economic Development said the government wanted to expand the number of listed firms as part of efforts by the Association of South East Asian Nations (Asean), of which Myanmar is a member, to form an interlinked stock market by 2015.

“The emergence of a stock exchange is very important for us in bringing the country in line with the rest of the Association of Southeast Asian Nations (Asean),” said the official, who asked not to be identified.

“Some important laws have already been drafted. After enacting these laws, the Securities and Exchange Committee will be formed. Then there will be rapid progress.”

That ambition is one of many signs of change since the army nominally handed power to civilians after the first elections in two decades last year, a process ridiculed at the time as a sham to cement authoritarian rule under a democratic facade.

Recent overtures by the government hint at possibly deeper changes at work – from calls for peace with ethnic minority guerrilla groups to some tolerance of criticism and more communication with Nobel Peace Prize laureate Aung San Suu Kyi, who was freed last year after 15 years of house arrest.

The push to expand the bourse also underlines how competition is heating up among exchanges in Asia’s frontier markets, following recent South Korean forays to build bourses in Cambodia and Laos.

Myanmar’s first stock exchange was closed in the 1960s after a military takeover. Its successor, the Myanmar Securities Exchange Centre, is a modest operation.

No new companies have signed up beyond the first two: Forest Products and Myanmar Citizens Bank. Both are jointly owned by the government and private investors.

For those who got in early, returns have been generous. Forest Products sold shares between 1993 and 1996 and has delivered dividends of about 25 percent a year.

Daiwa signed a deal on April 5, 1996 to start the exchange, but within a month the pact was cast into uncertainty as the military junta began rounding up hundreds of pro-democracy supporters in a crackdown on Suu Kyi.

That sparked an outcry in the West. US soft drink giant PepsiCo sold its stake in a Myanmar venture. US apparel firms cancelled contracts with Burmese suppliers. The White House urged Myanmar to halt its “pressure tactics”. A year later the US imposed sanctions as human rights abuses widened.

Undaunted, the exchange’s executive director, Soe Thein, assembled a small team to draft laws and set up an exchange regulator to achieve his dream of a capital market within five or six years. “But it failed to come up to our expectations.”

Now the new government has promised sweeping reforms – from tax reductions for exporters to microloans for farmers and interest rate cuts on bank loans. In recent weeks it has sought input from the International Monetary Fund.

The recent gestures follow the privatisation of hundreds of state assets from late 2009, including mining firms, an airline, shipping companies and factories, albeit mostly to cronies of the army regime.

Its banking system is crippled by sanctions, but Soe Thein remains optimistic.

And his little bourse may even face competition soon. South Korean bourse operator Korea Exchange said in January it had sent a delegation to Myanmar to hold preliminary talks with the government about the possibility of opening a separate exchange

Source: Reuters