Thanks retail, but Myanmar needs more institutional investors
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Asia

Thanks retail, but Myanmar needs more institutional investors

Yangon 230-150

Myanmar’s equity capital market is set for fresh impetus as a handful of companies line up IPOs, with a member of the regulatory body predicting it will be the shot in the arm needed for a market that has slipped into obscurity this year. But although more issuers will be welcome, it is a change in the investor base that is really needed.

Any fledgling stock exchange will want to see more names on its board. The same goes for the Yangon Stock Exchange, which counts just four listed companies on its ticker tape since it opened for business in December 2015.

Luckily, there’s more on the way. A member of the Securities Exchange Commission of Myanmar (SECM) said last week that the number of listed firms on the YSX could soon double, given that up to 40 companies meet 75% of the regulator’s listings requirements, while two have cleared all the hurdles and are ready for a floatation.

This is certainly welcome news. The YSX had its first listed company, First Myanmar Investment, in March 2016 and hosted its last IPO in January this year when First Private Bank made its debut. But since then, the primary market has gone quiet.

A quick look at the secondary market and it’s clear why companies are unwilling to jump headfirst into the IPO club.

In keeping with the trend set by its peers, First Private Bank’s stock price and daily trading volume flopped soon after listing, and have remained well below their launch levels. The country’s stock index too has slid, spotted at 490.96 on Tuesday — down from a starting point of 1,000 on March 25, 2016.

Having seen how poorly the first four stocks have performed, it is no surprise there is not much to draw a company to float on the exchange, let alone meet the stringent regulatory requirements to take itself public.

This is especially when firms can list their stock on the country’s over-the-counter market, which has a similar investor base and none of the barriers to entry. So far, all the firms trading on the YSX have listed by floating existing shares with no primary capital raised in the process.

To simply encourage more firms to do the same will have nothing but a superficial effect on the market. What Myanmar needs instead is a strong group of investors to show off.

Since its launch, the YSX has been largely supported by retail investors, but clearly this is not enough. To kick-start primary capital raising on the bourse there needs to be a deeper investor pool. Take construction firm Great Hor Kham as an example. It is expected to bring the first real IPO to the YSX, but talks of a possible deal have been around for nearly 12 months.

Admittedly, the local government has made efforts to increase the number of listed companies on the exchange, by offering a reduction in taxes for YSX-listed firms and waiving fines or other punishments for issues around tax payments.

But for market participants, and for the bourse, a bigger institutional buyer base is key. 

Any company looking to raise capital through a public offering is after reliable, long-term investors. But institutional money in Myanmar is sorely lacking given international institutions are restricted from investing in the country. There has also been little in the way of local investment opportunities to drive the development of a sizeable domestic investor base.

However, with a burgeoning number of general and life insurers in Myanmar, there is at least a starting point for such a buyer base to grow. And if this develops, market participants predict that, in turn, asset managers and other investment funds could follow. Meanwhile, a new Myanmar Companies Law close to approval could open the door to foreign capital.

Sure, beefing up the number of listed companies can be a long-term goal of the YSX and SECM, but focusing purely on that is to start with a handicap. Building a sophisticated investor base is half the task and they shouldn’t forget that.

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