THE LAST FRONTIER
The long journey to Myanmar’s first stock market
Starting a stock market is hard. Just ask Ryota Sugishita.
Two decades after his firm first laid the groundwork for an exchange in Myanmar, Sugishita found himself in a Yangon hotel ballroom in 2013, facing down sceptics in an audience of bankers, corporate executives and politicians.
“‘Why isn’t bank financing enough?’ is a question I got at every single one of those workshops,” said Sugishita, a managing director who led the Myanmar bourse project for Daiwa Institute of Research Holdings Ltd, a unit of Japan’s second-largest brokerage.
“Having never had a stock exchange before, they didn’t understand the importance of it.”’
Daiwa’s persistence is finally paying off. After 22 years of delays caused by the Asian financial crisis, a wary military government and an underdeveloped financial system, Myanmar — the biggest Asian economy without a stock market — officially opened its exchange in Yangon last Wednesday.
The milestone came less than a month after the watershed election victory for Aung San Suu Kyi’s National League for Democracy, part of a political and economic transformation that’s bringing an end to more than five decades of isolation.
For all the promise of a modern exchange, though, success is far from guaranteed: trading isn’t likely to start until at least February and foreign investors still lack access. There’s also a risk of further delays as the new government assumes power.
“We all have to start slowly,” Lyn Kok, the president and chief executive officer for Thailand and Greater Mekong at Standard Chartered, said in an interview. “The stock market there is definitely a good first step.”
The opening ceremony on Wednesday was attended by officials from the central bank, the ministry of finance and Daiwa. First Myanmar Investment, Myanmar Citizens Bank and Myanmar Thilawa Special Economic Zone are among the initial batch of six companies approved for listing, said Maung Maung Thein, the deputy finance minister and chairman of the Securities and Exchange Commission.
Myanmar’s equity-market journey began in the early 1990s, when Daiwa executives met with the country’s military rulers in Yangon amid a regionwide boom in both economic growth and share prices. Their initial target was to start a bourse by 2000.
“We felt it was odd that Myanmar didn’t have a stock exchange,” Sugishita said. “They said they wanted to build their financial infrastructure and wanted our expertise. It’s the first time we’d been involved in a state project, so we were very happy to.”
The region’s financial crisis soon derailed those ambitions and it wasn’t until 2011, after Thein Sein’s quasi-civilian government began opening up Myanmar’s economy, that the exchange plan was revived.
Faced with creating the country’s market infrastructure, securities regulator and trading laws from scratch, Daiwa decided to partner with Japan Exchange Group Inc on the project. JPX and Daiwa now own a 49% stake in the Myanmar bourse, with the remainder held by the country’s ministry of finance.
As part of preparation for the exchange, delegates from Myanmar visited Tokyo for “Stocks 101” classes taught by veteran Daiwa traders. JPX, which sees the Myanmar bourse as a way to promote its market-structure expertise across Asia, moved four executives to Yangon to oversee the project.
“We were starting from zero,” said Mitsuo Miwa, director of the group responsible for the Myanmar bourse at JPX. “It began with explaining what a stock is.”
There’s still a lot more work to do. Brokerages — including Daiwa and Myanmar’s KBZ Bank — only received their conditional trading licences in October. It’s unclear when the exchange will open up to foreign investors because the companies law is still being drafted, said Maung Maung Thein.
One of the biggest fears for Myanmar officials is that the bourse ends up like its counterparts in Cambodia and Laos, which have both failed to take off after opening to much fanfare, said Atsuo Tachikawa, the head of Myanmar Business Planning at Daiwa Securities. After starting five years ago, the Lao Securities Exchange still has just four listed equities, while Cambodia’s bourse has two.
With a US$66-billion economy that is more than three times bigger than those of Cambodia or Laos, Myanmar’s stock market has a better chance of success, say optimists. Positioned between India and China astride maritime trade routes, Myanmar is rich in natural resources and has 51 million people.
Buoyed by a flood of foreign direct investment, the economy is set to expand about 8.3% this year and nearly the same pace in 2016, according to the Asian Development Bank.
Myanmar’s “economic potential is very good, with its population size and resources”, said Marcus Svedberg, the Stockholm-based chief economist at East Capital Group, an emerging and frontier markets money manager. “We like the early-stage frontier countries that are just about to tap the global financial markets.”
For companies keen to list shares, an unofficial queue has been forming for months. Serge Pun, who returned to Myanmar as an investor more than two decades ago after fleeing a military coup in 1965, says he wants his conglomerate, First Myanmar, to be the country’s first exchangetraded company.
The firm submitted an application four months ago and aims to be a “catalyst for the exchange”, Pun said. “We are ready.”
(With assistance from Kyaw Thu)
“We were starting from zero. It began with explaining what a stock is”
MITSUO MIWA
Japan Exchange Group