YANGON -- More than two years after it began trading, the Yangon Stock Exchange is still struggling to escape the trap of few listed companies, few investors and low share prices.
The Myanmar Stock Price Index, or Myanpix, closed at 437.36 on June 4 -- down 56% from the baseline of 1,000 on March 25, 2016, the exchange’s first trading day. Only five companies have listed so far on the YSX, as the exchange is known, which has roughly 100 active investors among more than 30,000 account holders.
Thein Myint, a member of the Securities and Exchange Commission of Myanmar, acknowledges that expectations have not been met over the last two years. Some experts say that it was too soon to open the stock market, which was officially launched in December 2015, given that financial institutions have not yet matured, the low number of bank account holders, and the lack of strong corporate governance.
But now, there is room for optimism. New legislation, which was passed last year and takes effect on Aug. 1, will allow businesses to be up to 35%-owned by foreigners without losing their domestic-company status required for listing on the exchange.
Neville Daw, the head of a new government-led listing-promotion task force, said most questions from companies considering a stock listing are about whether they can raise financing through initial public offerings. “But we now have the new company law,” he said.
The SEC of Myanmar will allow foreign investors to purchase shares on the YSX once the law is put into force. The plan is to start with foreign residents of Myanmar, and then gradually expand to international traders abroad.
Although listed companies will have to revise their corporate statutes so that foreigners can take part, "many of the listed companies are likely to welcome foreigners' investment," Thein Myint said. The process will begin after the implementation of the new law, he said, with actual trading of shares expected to start within several months.
Three local companies are already in the preparatory stages of applying to list on the exchange, according to a person with direct knowledge of the process. "At least two of them are expected to be listed within this year," the source said, in addition to the five companies currently listed.
The three companies include Great Hor Kham, based in the Chinese border town of Muse in Myanmar’s Shan state. The construction company has expanded its wide-ranging operations -- such as work on roads, bridges and major electricity generating infrastructure -- using its unique position and networks with local Chinese communities. The other two companies preparing to apply for a listing are Myanmar Agro Exchange, which operates markets for agricultural products such as fruit and flowers, and logistics company Ever Flow River.
The stock market "is absolutely critical for economic growth and development," Sean Turnell, special economic consultant to Myanmar's de facto civilian leader, State Counselor Aung San Suu Kyi, said this week at a forum organized by the YSX.
Though it has not been on the verge of immediate success, it "can be a much bigger success" as the economy develops, Turnell said in his keynote address at the Yangon Stock Exchange, a historical building from the British-colonial era. "If we are imperfect, let's do what we can do when we can."
The YSX itself has taken gradual steps toward modernization, but it remains well behind exchanges in developed countries that can handle large trade orders in milliseconds. The YSX now matches buy and sell orders four times a day, up from two, and recently lifted a ban on online trading.
A reorganization of the banking sector would also help to develop institutional investors in Myanmar, Daw said. "At the moment, we are just only relying on retail [investors] in the market," he said. "But a good market has retail, institutional and foreigners." Daw said he expects the benefits of raising capital through IPOs to become clearer in the near future.
Still, the challenges ahead remain significant, including slow progress on banking reform, a lack of knowledge of the stock market among the general public, and the limited availability of information on listed companies. Political leadership will be crucial to promote reform. The government recently nominated Soe Win, managing partner at Deloitte Touche Myanmar Vigour Advisory, to head the Ministry of Planning and Finance, which oversees Myanmar’s securities exchanges.
The Myanmar government recently launched a new task force -- led by Daw and funded by the Japan International Cooperation Agency -- with a mandate of promoting listings and helping the country’s companies see the benefits of joining the YSX. The task force's five international experts will encourage eligible companies to list and connect them to a network that includes securities authorities, law and accounting firms, and advisory companies.
Daw said the task force’s members have visited CEOs and chief financial officers at roughly 20 companies in the first month and a half of its formation. "Their response is very good," he said, referring to the companies, with a number of them expressing interest in beginning preparations for pre-IPO assessments.