Mon, May 14, 2012 - Page 11 News List

Japan competes to enter ‘final frontier’

CLASH OF THE TITANS:As Myanmar pushes forward with reforms, shedding economic sanctions, Tokyo and Seoul vie to be the first to conquer Asia’s newest market


Two of Asia’s biggest stock exchanges are fighting for dominance in the world’s hottest new frontier market as investors beat a path to Myanmar following the end of decades of military rule.

The operator of the Tokyo Stock Exchange announced last month an agreement with Myanmar’s central bank to open a stock market in the country along with Japan’s Daiwa Securities, after years of discussions.

Executives from Asia’s largest bourse plan to travel to Myanmar later this month to ink the deal.

They face competition from South Korea, whose exchange also aims to open a stock market in the former pariah state, according to a spokesman for Korea Exchange.

Its director recently visited the capital, Naypyidaw, for talks with Myanmar’s central bank governor about developing the country’s capital markets. However, experts say the Japanese are unlikely to let the opportunity slip away.

“The Japanese need it more and they’ll be very, very competitive about getting into that market,” managing director at IHS Consulting in Singapore Tony Nash said.

He said there was a sense that the Tokyo Stock Exchange felt left out of recent consolidation between global market operators and needed “a growth enhancer to make them a little more attractive in terms of an exchange tie-up.”

The Japanese consortium has stolen a march on the South Koreans, thanks to a little known, but 16-year-old stock market tucked away in a crumbling building in downtown Yangon offering over-the-counter deals in two stocks.

The Myanmar Securities Exchange Center, a joint venture between Daiwa’s research arm and the government-run Myanmar Economic Bank, has a skeleton staff of about 10 and just a few customers visiting every day.

However, it is a market minnow with big ambitions, aiming to transform itself into a full-fledged bourse by 2015 using the technology and trading platforms of the Tokyo Stock Exchange.

Its low turnover is not due to a lack of interest. The two stocks listed — a bank and a timber company, both majority-owned by the government — offered attractive dividend yields of about 25 to 30 percent last year.

“Share trading is very tiny — there are so many buyers but no sellers,” Myanmar Securities Exchange Center managing director Shigeto Inami said in an interview at the bourse’s offices, where a small board displays the day’s prices of the two stocks printed on sheets of paper, the old-fashioned way.

As well as interest among Burmese, foreign investors are eager not to be left out of what could be Asia’s next big economic boom, as the EU and other countries start to roll back sanctions.

Despite the eagerness, investing in a country whose economy has been left in tatters by nearly half a century of military rule is not without risks.

“Due to its location, population and resources Myanmar is the holy grail for frontier investors, but it is still early in its reform process,” said Douglas Clayton, founder and chief executive officer of the Cambodia-based Leopard Capital, a firm that specializes in emerging markets and plans to launch a Myanmar fund.

“There are severe capacity constraints in human resources and physical infrastructure,” he said. “Myanmar is not ready to absorb the tidal wave of projects foreigners can imagine starting there.”

Much of Myanmar’s industry is currently controlled by companies owned by the government or their cronies, although the government’s economic reforms could lead to increased competition from rivals.

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