Experts cautious on stock market appeal

The planned stock market will likely not be a success straight out of the starting gate, though could eventually emerge as a worthwhile destination for investment, according to experts.

While the Yangon Stock Exchange is slated to open in October 2015, it will need to prove its performance before it can capture trust – and capital – from potential investors.

A host of challenges confront the exchange, and would-be investors will need assurance the market is fair and well-regulated before they will participate. There are also few public companies that will be able to meet the listing criteria, meaning few stocks to choose from, particularly in the early years.

Asia Green Development Bank executive director U Soe Thein, who is also former managing director of Myanmar Securities Exchange Centre, said the government’s performance setting up the exchange has been hasty so far, and it is unlikely to develop as quickly as some would wish.

Although the Securities Exchange Law was passed in July 2013, much of the legal structure that is to back the exchange hasn’t been released. U Soe Thein said that the market will have difficulty developing until processes and rules are clear.

Regulators in particular must ensure that listed companies are transparent and investors are educated and provided with relevant information, or they risk being cheated.

Shares in YSX-listed firms will need to compete with other capital investments like bonds, as well as high interest rates on deposits offered by local banks.

“It might be the wrong message if someone says a share’s value always goes up; we cannot refer only to the situation on the New York stock exchange,” he said.

Deputy finance minister U Maung Maung Thein has said market participants such as brokers and underwriters will be invited to begin applying the month.

However, the crucial rules governing the conduct and ethics of these participants have also not been released, said U Soe Thein. He added, “The market will be impacted depending on their ethics.”

Myanmar Oriental Bank chair U Mya Than said it is unlikely the stock market will initially attract much money that is currently stored in bank accounts.

Bank deposit interest rates start at 8 percent, providing an attractive return, particularly in a low-inflation environment. U Mya Than said some of the heat is now leaving the property market, meaning many are leaving their money in deposit accounts.

In order to attract money from deposit accounts into the stock market, it is important that international account standards are followed by reliable auditing firms. There also need to be choices of different companies – regional stock markets in Laos and Cambodia have had difficulty attracted interest from companies in participating, which has kept investors away.

So far Asia Green Development bank, First Myanmar Investment and Myanmar Agri-business have declared intention to list soon after the YSX’s launch. Other companies are considering listing, with some putting their books in order to meet regulatory and investor scrutinty, though have not yet made a committment to list.

Myanmar Agri-business Public Company (MAPCO) managing director U Ye Min Aung said it has been preparing to list on the YSX since the Myanmar Security Exchange Law was passed in June 2013.

“Although MAPCO could work as a public company without a need to be listed, we [the Board of Directors] want to be a big, strong company that can compete on the international market – that’s why we’re trying to list,” he said. “But we know there are many challenges ahead.”

The Central Bank of Myanmar is currently working on a reliable settlement system for the Yangon Stock Exchange, which is being developed in conjunction with Japan International Cooperation Agency.

A central bank official said it is important Myanmar puts its potential capital to productive use.

“The Central Bank should encourage development of the capital markets, rather than encouraging investment into things like gold, which becomes dead money,” he said.

Officials have sought to play up the market’s importance ahead of its launch. Deputy finance minister U Maung Maung Thein said stocks are an important alternative for those concerned about inflation.

“Inflation risk is terrifying for investors, but stock values rise as much as inflation rates,” he said at a seminar on the Yangon Stock Exchange on January 9. “Every business has its risks, but stocks have one of the least amounts of business risk.”

U Maung Maung Thein said other assets such as government bonds, US dollars and property are often at risk of inflation. He also pointed out that while the price of gold increased only 0.07pc last year on local markets, world stock markets provided a 10 to 12pc return.

Although government officials are keen to tout the potentail of the stock market, experts said investors should ultimately choose assets with a profile that suits them.

Economist U Khine Htun said real estate may be more beneficial for many at present, particularly in the short run, as the stock market will take time.

Stock markets attempt to channel savings into capital that companies can use to expand, though are at the mercy of a company’s honesty and business success. Listed companies must be transparent in their figures, though only “a few companies are willing to disclose their profile, which will be a challenge in the early stages,” he said.

“Stocks may be similar to gambling, but it’s also predictable – the more information, the less risk.”

The Yangon Stock Exchange may also benefit from tapering interest in the domestic property market, as rumors abound about a possible bubble, while other alternatives like gold are quiet.


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