World's tiniest stock exchange hungers for forbidden foreigners

NEW YORK (BLOOMBERG) - Myanmar has a stock exchange. Who knew?

Not many people, inside or outside the country formerly known as Burma. Now a year old, the Yangon Stock Exchange is home to just four companies. None of them has raised new capital, and trading is dominated by small investors, many of whom buy stock for less than 20,000 kyat, or S$20.70. On a recent day, fewer than 17,000 shares changed hands, about as many as the world's biggest stock market in New York traded in an eighth of a second.

Since Myanmar emerged from a half-century of military rule and elected a democratic government in December 2015, many of the 51 million Burmese have eagerly embraced cars and social media, and three-quarters own a smartphone.  Just don't expect them to show enthusiasm for finance. With an average annual income of US$1,270 (S$1,800) and a history of wariness toward banks, the Burmese have yet to establish a sturdy economic system. Myanmar has little in the way of retail banking, mortgages, credit cards, retirement accounts or corporate bond market. Yet, the government's first and most expensive financial project was the creation of the Yangon exchange.

Another problem: foreign investment is forbidden on the exchange. A revision of the Local Company Law, which would allow non-Burmese to own as much as 35 per cent of a Burmese company, could come as early as this month, said Daw Tin May Oo, a commissioner of Myanmar's Securities and Exchange Commission. But until something changes, the exchange's four companies - First Myanmar Investment Co, Myanmar Thilawa SEZ Holdings Public Ltd, Myanmar Citizens Bank Ltd and First Private Bank Ltd, which joined on Jan 20, will keep muddling along in what's essentially a show of the country's fledgling capitalism.

"It's difficult to see the exchange now as anything but another vanity project for the government, which is unfortunate because they did so many other good things," said Mike Dean, a London native and co-founder and director of Myanmar Investments, a private equity firm based in Yangon.

The government has had to start its financial industry from less than zero. During the military regime, which started in 1962, Burmese grew accustomed to storing wealth anywhere but in financial institutions. A 2003 bank run that wiped out much of the savings kept in the country's private banks remains a particularly bitter memory, Dean said.

"Especially after that, they'd rather keep their money in virtually anything else," Dean said.

When the exchange opened, enthusiasm was high, May said. About 200 people from rural areas showed up in Yangon looking to trade precious metals and gems in hand-woven baskets for shares, May said. Once it became clear that a relationship with one of the six authorized brokers was required, most lost interest, he said.

"It's been disappointing, to say the least,'' May said.

The lack of public engagement has made the stock market an anomaly unconnected to many Burmese, like the overly optimistic and largely empty 20-lane highways connecting the new capital, Naypyidaw, with sparsely patronized luxury hotels and shopping malls.

One afternoon in January, at the imposing neo-colonial exchange building in downtown Yangon, the pothole-pocked commercial capital with the population of New York City, the only noise came from the four brokers. They were huddled around one of the trading tables playing cards. The day's activity swelled in the afternoon, before the market's close, when a dozen or so uniformed Burmese business-school students wearing "visitor'' lanyards filed into the room. A few minutes past 1pm, a 90-second jingle played to mark the end of the trading day.

Foreign interest is keen, Dean said. Investment vehicles of choice have included joint ventures, rather than equity stakes, especially as regulations remain light, he said.

"It's like Hong Kong in the 80s," Dean said.

The sleepy exchange would benefit from foreign investors - at least enough to keep its traders busy with something other than card games, said Thaung Han, the head of CB Securities, one of the six brokers on the exchange. Under current law, a company can be booted from the exchange for accepting foreign investment.

Despite the penalties, some companies welcomed Chinese investors, even though it was done secretively, Han said.

"They'd bring in a Myanmar citizen as a local proxy, and we wouldn't know if it's his wife or someone else," Han said. "It's not allowed, but the government couldn't do anything but give a stern warning because it's so hard to prove."

Han sounded almost desperate for a loosening of the Local Company Law, which he says is the only way to get the Yangon exchange out of its rut.

"It has to happen,'' he said. "we really need those funds. It's the only way to support its growth."

At times, it can seem as if the government doesn't want Burmese to participate on the exchange, Han said. Trying to capitalize on the country's smartphone obsession, all six security brokers created mobile trading platforms for their clients. The government outlawed all six, Han said.

"They think we need to interact face to face and educate investors before they make trades," Han said. His clients often get investment tips from fortune tellers and neighborhood rumors, he said.

To trade on the Yangon Stock Exchange, an investor must go to the market or call and speak with a broker, Han said. Trades of more than US$8,000 have to be reported and approved by the securities commission. Many of those large trades don't get approved, Han said.

"That's Myanmar," Han said.