Presidential Visit Puts Myanmar Investment Theme in Spotlight

May 19, 2013 11:11 am
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Six months after President Barack Obama visited Myanmar, that country’s president, Thein Sein, will visit the White House. Sein’s visit to Washington, D.C. marks the first such visit by a leader from the Southeast Asian nation in nearly five decades and it is one that again puts the spotlight on Myanmar’s burgeoning but controversial investment thesis.

As is often the case with many countries sporting the emerging or frontier labels, Myanmar possesses ample economic potential. For investors, there is also plenty of risk. After serving as a stage for allied and opposing forces’ operations during World War II, Myanmar’s infrastructure was ravaged. Military rule dominated the country during the 1990s despite supposedly free elections.

Today, the country lacks a sophisticated legal structure, an advanced banking system and robust foreign exchange operations. Those factors make for a series of red flags for even the most adventurous investors. An unfortunate reality is that Myanmar, a country as large as France, has lost 50 years of economic progress, according to Economy Watch.

However, Sein is working to change his country’s image and his visit with Obama plays a part in that mission. It also serves as a reminder that Myanmar, currently a virtually inaccessible to most U.S. investors, is worth keeping an eye on.

Vital Statistics
Numbers do not lie and that saying is encouraging when it comes to Myanmar. Granted, the country is starting from a low base, but its real GDP has grown an estimated five to six percent over the past four years and that number could climb to six to eight percent over the next decade, according to Economy Watch. Assuming a growth rate of six to seven percent, Myanmar could be on par with recent numbers seen out of the Philippines.

Statistics released earlier this month indicate foreign direct investment to Myanmar is surging. In the fiscal year ending in April 2013, Myanmar attracted $1.419 billion in foreign direct investment, an almost fivefold increase over the previous fiscal year, according to Reuters. China, Hong Kong, Japan, South Korea and Singapore were top contributors to that figure.

Bolstering the case for further foreign investment in Myanmar, the Myanmar Investment Commission believes it is close to receiving Generalised System of Preferences status from the European Union, Reuters reported.

Despite those enticing statistics, Myanmar remains a difficult country to access for foreign equity investors. Although it is a member of the Association of South East Asian Nations (ASEAN), Myanmar’s stock market is not nearly as advanced as those in other ASEAN member states such as Singapore, Thailand or the Philippines.

Myanmar’s bourse was actually closed in the 1960s at the hands of the military regime that ruled the country at the time and in 2011, there were just two companies on the Myanmar Securities Exchange where prices were updated on a whiteboard, Reuters reported.

Change is afoot, however, as the operator of the Tokyo Stock Exchange, South Korean and Thai rivals are looking to establish advanced exchanges in Myanmar. In January, the Stock Exchange of Thailand and the Myanmar Central Bank signed an agreement that calls for the former to support the establishment of the Myanmar Stock Exchange.

Available Options
The best avenue for investors to get involved with Myanmar is through ETFs, although a Myanmar-specific ETF may be a long way off. For now, any ETF that is used as a Myanmar play is an indirect route to the country, but one of the better ideas is the iShares MSCI Thailand Capped Investable Market Index Fund (NYSE: THD).

THD, a high-flying emerging markets ETF in its own right with a year-to-date gain of almost 14 percent, allocates almost 39 percent of its weight to financial services names. That could give the ETF some exposure to an advancing Myanmar financial system, particularly if the Stock Exchange of Thailand is successful in establishing a sophisticated bourse in Myanmar.

Thailand, while not always a beacon of political stability, is one of the more stable nations in the region and shares a border with Myanmar. That could provide for enhanced trade between the two as Myanmar’s economy evolves in the coming years.

The Global X FTSE ASEAN 40 ETF (NYSE: ASEA) is another option to consider, though the ETF’s name is somewhat deceiving. ASEA does not offer exposure to all of the ASEAN nations and the bulk of the fund’s weight is allocated to Singapore and Malaysia, though the ETF does offer some decent exposure to Indonesia and Thailand, which have been two of the better performing emerging markets this year.

Risk-tolerant investors can consider the Market Vectors Vietnam ETF (NYSE: VNM). Like THD, VNM is heavily allocated to the financial services sector, an issue that cannot be ignored as Vietnam works to alleviate its banks of bad debt and sour loans. However, VNM could prove to be a legitimate play on Myanmar’s growing economy as the two countries recently reached an agreement to increase bilateral trade to at least $500 million by 2015.

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