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New Stock Exchange in Myanmar

New Opportunities for Growth and Investment

By
Dr. Bandi Ram Prasad1

Myanmar is all set to get a stock exchange. Come October 2015, the brand new Yangon
Stock Exchange, borne out of collaboration between Myanmar Economic Bank, Daiwa
Institute of Research and Japan Exchange Group is set to begin operations with Japan
International Cooperation Agency (JICA) extending technical assistance for a state of the art
regulatory and surveillance system. The entry of new stock market is expected to harness
opportunities for investment that could fuel growth in the economy and deepen the
financial markets. Skeptics might dismiss this as yet another pipe dream, but in case of
Myanmar, it could made be different.

The current state of financial market in Myanmar is very low and limited. Efforts to set up a
stock exchange were limping since 1996. Bond market is meager size of $2.7 billion, most of
it in short term maturity held by banks. The stock market is all about just two stocks traded
in the OTC market. This leaves enormous scope for capital market development in
Myanmar. Domestic and international investors will be more than happy to participate in
the growth of this sector, which has great prospects in the future.

Between 180 and 2005, there are about 60 countries that set up stock exchanges but very
few were able to find success. Near to home, exchanges in Cambodia and Laos that began a
couple of years ago did not present a picture of optimism. The question that naturally
comes out is, whether Myanmar could be an exception? A whole lot depends on the
strategy that accompanies the process of stock market development.

Stock markets have brought in enormous benefits to major economies in the Asia region
including India and China. As recent as early 2000s, both these countries had very limited
and shallow markets. Fifteen years of progress in creating a regulatory structure that
compares with the best in the world, extensive market infrastructure, technology and
supporting ecosystem, stringent compliance standards, reforms in accounting and audit,
greater amount transparency and disclosure, promotion of financial literacy and investor
education etc. have transformed these markets into those that are widely respected and
regarded by the international and domestic investors. From a small base, both these
countries emerged as markets with more than a trillion dollar market capitalization with
exceptionally high volumes of trading and a hugely expanded product base.

Stock markets are an important source of economic growth and efficiency. The sequence is
quite simple. Traditionally, businesses depend on banks for finance, where burden of
interest and collaterals along with limits on the loans could restrict the potential for growth.
Where as, stock markets provide platforms to raise risk capital, in which investors expect the
return in the form of dividend and price appreciation. If the companies do well, so as the
returns. This is facilitated by another important function of the stock markets, to provide
liquidity to shares, through a platform for trading of the shares of listed companies. Stock
exchanges thus provide a cost effective avenue to raise risk capital and an efficient platform

1
Dr. Prasad, a financial market development consultant runs a consulting firm Growth Markets Advisory
Services, based in Mumbai, India. His email : bandi.ramprasad@gmail.com He was in Myanmar in the last week
of June for consultations on various aspects of the stock market development.
for price discovery and trading of shares that could help the economy in several ways.
Companies and businesses could raise capital to pursue growth, expansion and profitability
where investors could be a part of this growth and wealth creation. Historically many of the
new ideas, inventions and infrastructure (such as railways, roads and bridges,
communications and technology etc.) in the United States and Europe in the early days of
development, were funded by stock markets. There is no reason why stock markets cannot
fulfill this function in Myanmar.

Successful stock markets usher in great transformation. Stock market development induces
and encourages companies to manage business and operations in accordance with global
norms of governance, management and transparency and focus on aspects such as
regulatory compliance, transparency and disclosure. It will unleash enterprise and
entrepreneurial development that could trigger hidden potential of the country.
Simultaneously it could bring much needed changes in payment systems, integration
between banking and capital markets, increased opportunities for retail and institutional
investors and an added avenue for the international investors. All these could make the
growth process robust and refined with a positive impact on the economy and the public
good.

Globally stock markets have been major drivers for bringing transparency in corporate
governance and market conduct. Companies all over the world recognize and realized that
being more open and transparent by listing in stock markets could add more wealth and
value for themselves and lead to greater welfare of investors. It is important that suitable
guidance and handholding is extended for companies in the Myanmar on the benefits of
public listing in the initial stages.

A concerted effort in capacity building is crucial successful market development. In addition
to the setting up of the regulatory institution and a stock exchange, suitable infrastructure
and relevant process development is warranted in areas such as dematerialization and
depository services, clearing and settlement, share transfer and custody services,
investment and merchant banking, financial accounting, rating services, financing of
securities markets operations and investor grievance redressal mechanism including
measures of protecting and compensating the investors in case of default etc.
Simultaneously, research investor awareness and financial literacy and education are equally
important.

The strategy thus is of great significance. A well drafted road map with specific timelines to
achieve key milestones and supported by a qualified and committed team to steer the plan
through an effective course of action is vital. Engaging with stakeholders and wide ranging
consultations to bring all the key sectors and constituents on the board is an equally
important priority.

Why Myanmar has better prospects for a successful stock exchange? Its place and position.
It is in the midst of fast growing Asia, is a part of the ASEAN Community which it chairs in the
current year, has easier access and located closer to a well developed market infrastructure,
products, processes and procedures in the neighboring countries. The economy is growing at
over 7 per cent a year and holds further prospects ahead. It is pursuing democratic process
and gradually opening up of the economy. All these are quite positive signals to domestic
and international investing community.




In specific areas of market development, Myanmar could also explore the benefits of
bilateral relations. For instance, Myanmar and India have a long history of commercial
relations. For instance, way back in the 1930s, Indian exchanges of Mumbai and Kolkata
reported to have provided quotes for stocks of a select British and American companies
traded in then Rangoon Stock Exchange which operated between 1930s to 1941 and from
the late 1950s to the early 1960s. A long land border of 1600 kms, a maritime boundary in
the Bay of Bengal, large presence of Indian population, a Treaty of Friendship signed in 1951
and a growing bilateral trade volume which last year stood at US$ 2billion and continuing
cordial relations etc. are all positive indicators to pursue further cooperation in market
development.

Generally cities with a history of business and trade tend to get into faster mode of growth
in capital markets. It happened with cities such as Hong Kong, Shanghai and Mumbai.
Rangoon as was no less in importance as a major trading center a few centuries ago. A quote
from Michael Symes, the Irish Soldier, diplomat and politician cited in a book History of
Rangoon by B.R.Pearn, profiles the commerce of this city in 1795, that the city 'exhibits a
motley of assemblage of merchants, such as few towns of much greater magnitude can
produce; Malabars, Moguls, Persians, Parsees, Armenians, Portuguese, French, and English,
all mingle here and are engaged in various branches of commerce'

It is this past glory, which Yangon could hope to recapture once again with the Yangon Stock
Exchange for a better future.

End of the Article


Address for Communication

Dr. Bandi Ram Prasad
Growth Market Advisory Services
A 204, Mary Ellen, Mhatarpada Road
Amboli, Andheri West,
Mumbai : 400 058, India

Tel : +91 98201 59618/ 98200 98188
Email : bandi.ramprasad@gmail.com