Yangon Stock Exchange to open amidst suspicion

Many analysts believe the Yangon Stock Exchange, which will be fully operational by March this year, is opening with unfair advantages and possible conflicts of interests.

The Yangon Stock Exchange (YSX) automatically entered the US sanctions blacklist as the Myanmar Economic Bank, an entity already sanctioned by the US Treasury Department’s Office of Foreign Assets Control (OFAC), claims ownership of the market by virtue of its 51 per cent stake.

The remaining shares are held jointly by Japan Exchange Group and Daiwa Securities Group.

Although analysts and experts have their worries, they have also said the YSX may not be that adversely affected by being on the US sanctions list.

“There should be no problems in the short term because things will only be done locally for now. According to Article 19 of the sanction-related laws, only American citizens are forbidden to invest. It will be at least 2 years for all the wheels to turn for the exchange in the local scene, so there is hope that the sanctions will not damage the Yangon Stock Exchange or even that it will get removed from the list because of the political reforms on the way,” said Deputy Director Soe Thein of Asia Green Development Bank.

However, though this silver lining should be acknowledged, the issues of risky and unfair practices must also be addressed.

Unchecked stock prices growth and insider trading

The Yangon Stock Exchange has yet to issue licenses to all of the 10 companies chosen to operate in it when its doors open. Nonetheless, stock share prices of the 10 chosen companies, such as Myanmar Thilawa SEZ Holdings, have leaped drastically.

This means that shareholders are at a real risk of losing their investments, as those companies can withdraw from being members of the YSX.

Current share prices for Myanmar Thilawa SEZ Holdings Public Co Ltd are over Ks 80,000 per share—over eight times their value before the company joined the YSX.

Other companies, such as First Private Bank and First Myanmar Investment also saw their stock share prices rise up to three times their original values.

Those fluent in stock share linguistics have pointed out that while simple logic provides the answer that being listed on the stock exchange will no doubt generate growth for the share values, no one really knows in detail why they are increasing.

That mystery, plus the unconfirmed rates at which the YSX will actually sell the shares, as well as hints of money laundering and financial monopolies have given rise to concerns over companies elevating their stock share prices, according to experts.

One of the 17 rules and regulations set by the stock exchange mandates that companies wishing to be a part of the exchange must have a system implemented to prevent insider trading.

According to Soe Thein, the companies inflating their share prices and selling them are doing so illegally, which reflects a major weakness in the role of the Securities and Exchange Commission of Myanmar (SECM) as the regulatory authority, as it is not taking any action against such actions.

“The amount of shares that are being traded operates within a small boundary as it is limited by how much of the share is being put up for sale. If there is high demand with low supply, the prices go up. If a company’s product manages to successfully penetrate the global market, the prices go up. In the global scene, companies listed in stock exchanges buy shares from each other so as to increase their share values. I am unsure whether companies in Myanmar are doing it,” said Dr Aung Ko Ko, an economic policy expert.

Money Laundering

The issue of money laundering has been a hot topic since the conception of the YSX, as economics experts and the media alike have warned that exchange might become the money laundering epicentre of Myanmar if it is not tightly regulated.

Dr Maung Maung Thein, chairman of the SECM, has responded to such criticisms saying they serve only to damage the well-being of the stock exchange.

Soe Thein described the chairman’s comment as a “careless response”.

“If investigations are only done if the values went over Ks 10 million, they could just buy Ks 9 million worth of shares and infinitely repeat their laundering while paying taxes on just Ks 9 million—that is money laundering,” said Soe Thein.

Even those involved currently involved with the Yangon Stock Exchange are sceptical.

“It is not only the money from drug trade—the sale of arms, crimes and tax evasion, corruption and graft—all of those fall under money laundering. In places like the US, if a person receives money, let’s say a thousand dollars and it will go under the radar the first time but if it is repeated often, he or she will definitely be investigated. Since even minute details are being investigated, there is less need for a full blown investigation when trading. In Myanmar, if you want to find out whether the money is legal or illegal; it will never end. So now that the stock exchange is happening, who is going to be the one monitoring? Right now, it is looking like the companies themselves needs to look into these matters, but it is a difficult and expensive juncture. Therefore, every time a buyer appears and investigations need to be launched, trading will never occur. On the other hand, if such things goes unchecked—the Yangon Stock Exchange will become the money laundering headquarters,” said a retired deputy executive director of the Ministry of Finance.

 

Source: Eleven Media

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