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| First the grand opening; come March it's live trading. |
One good turn deserves another: following
discussions of a much-anticipated IPO on Vietnam's stock exchange, we should discuss the imminent opening of Myanmar's as one of Southeast Asia's frontier CLMV (Cambodia, Laos, Mynamar, Vietnam) markets. To say that years of economic isolation--partly self-imposed, partly the result of international economic sanctions--have left Myanmar's economy in a funky shape is an
understatement. Consider its foreign exchange regime:
Myanmar has four currency rates, no credit rating, and a shiny new stock exchange that doesn’t yet trade...
Myanmar’s currency, the kyat, was pegged to the IMF’s special drawing rights basket for much of the junta’s reign. The official rate was set at about 6.4 kyat per dollar—which made it more than 100 times overvalued in comparison with rates available on the black market.
After the country started moving toward civilian rule, the central bank in 2012 introduced a managed float, initially setting the daily rate at 818 kyat per dollar. That regime is still in effect. Each morning, after commercial banks put in bids for the currency at an auction, the central bank announces a reference rate. Banks are then allowed to buy and sell kyat in a trading band of 0.8 percent on either side of that rate.
Commercial banks also have more competitive, unofficial currency rates that they use on the quiet. Then there’s the black market rate, which accounts for most transactions.
The central bank aims eventually to unify all four rates. Last year it started a slow depreciation of official rates. “The formal and informal exchange rates are now not much different,” says Win Thaw, the central bank’s deputy director general who heads its currency department. “It is below 1 percent. Some of the local banks and foreign banks that were awarded licenses have started forward and swaps trading.”
Aside from sorting out a single exchange rate, the real excitement swirls around the new stock exchange. It's been built already; it just await its first trading day. The thing is, Cambodia and Laos actually have stock markets already. However, the trading volumes there are so limited that capital raised there is minimal. That's the situation Myanmar is trying to avoid as it strives to create a fully functional exchange conducive to raising capital:
Six companies have been chosen to list, including two banks, according to the country’s Securities and Exchange Commission. First Myanmar Investment, a conglomerate controlled by businessman Serge Pun, aims to be among the first to trade, Pun has said.
Trading on the exchange is expected to begin in March. Foreign investors won’t have access at first. One of the fears is that the bourse ends up like exchanges in Cambodia and Laos, which have failed to take off. Optimists argue that Myanmar’s market has a better chance of success, given that its $66 billion GDP is more than three times that of Cambodia or Laos. “Myanmar’s economy and population are not directly comparable to these nations,” says Melvyn Pun, a son of Serge Pun and a holder of First Myanmar Investment shares. “Myanmar has more than seven times as many people as Laos.” As part of preparation for the exchange, delegates from Myanmar visited Tokyo for “Stocks 101” classes taught by veteran Daiwa traders.
“There are many successful stock exchanges in the region,” says the younger Pun. “Ho Chi Minh City Stock Exchange, Thailand’s SET, and Bursa Malaysia can serve as positive examples.”
Burmese capitalism is coming on by leaps and bounds, it seems--at least relative to where it was during the height of junta rule.
