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A Forever Fledgling Exchange?

YSX is trying to get out of the ‘fledgling exchange’ moniker sooner rather than later. Yet based on our analysis its latest yearly report, it would still take a long while to achieve that.

As of March 31, 2022, there were nearly 45,000 trading accounts being held by investors and traders. In a country with a population of 55 million in an exchange allowing foreign ownership of listed local companies up to 15% of the capital, this represents less than 0.1% of the entire population. Just for comparison, there are 33,000 trading accounts in Cambodia, with 17 million population, representing 0.2% of the population. And, 2.5 million accounts vs. 70 million population in neighbouring Thailand, representing 3.6% of the population.

Trading statistics does not board very well either. With the number of listed companies of just seven, the market capitalisation was at a miserly $304 million. Cambodia got nine listed entities with a market cap of approximately $4 billion. The Thais got a well developed market with a capitalisation of $500 billion, represented by 800 listed companies. Daily trading volumes were at $30,000, $0.25 million and $2 billion in the three countries, respectively.

Neighbourhood WatchTrading Accounts (‘000)Market Cap ($mil)Daily Volume ($000)

SECM (Securities and Exchange Commission of Myanmar) is facing an uphill tasks to even catch up with the second poorest country within ASEAN. Myanmar has taken the honour of being the poorest since 2017 (World Bank data, based on GDP per capita). MI recently spoke to the Secretary of SECM recently to understand better on the activities in the coming years, in order to stimulate the fledgling market. From educating the population to changing of the investors mindset, introduction of the second board (similar to Thailand’s MAI) to encouraging six licensed security companies to trade on their own accounts, allowing the trading of T Bonds/T Bills to ensuring compliance, SECM  is pushing hard, within its limited resources and a lacklustre economy, to play the inevitable catchup game.

Stock exchanges are extremely important in a capitalist economy, for economic development of the nation. From the economics perspective, capital matching and allocation, investments and FDI, all become much easier with an exchange. From the businesses perspectives, raising money to expand,  grown and internationalise, are best done via an exchange. An exchange gives a listed company a power akin to printing money, through selling of its shares (papers) to investors and public.

Myanmar population in general as well as local businesses are not familiar with the mechanisms of the YSX (Yangon Stock Exchange). With all its announcements and reports being kept solely on its website, instead of national or private media, the push branding approach is missing at present. Even the senior personnel from government clearly owned media channels do not know what YSX is.

In terms of mindset, most investors are not used the capital appreciation concept yet in Myanmar. They look forward to dividends from their investments every year. ‘Bird in the Hand’ theory of dividend policy would be of significant use in the country. YSX seriously needs awareness and branding campaigns in order to be well known, attract investors and change the mindsets of existing traders.

Introduction of the second board and asking security companies to trade on their own investment accounts seem to be both very good approaches. At the same time, a change in trading rule from prepayment system to a credit system, to implement the genuine T+3 settlement concept would be more welcoming and fruitful. At present, in order to buy shares, potential investors have to deposit money into their own accounts with the security companies first (earning no holding interest) or have money in the bank account linked with the security company. This is not in line with the trading environment overseas. Considering the top two markets within ASEAN, Singapore and Thailand, the investors are given a credit limit on their trading accounts. These investors can call up their their brokers or get online, without having to deposit a cent, to buy shares. When it comes to settlement day, if the investor does not have funds to settle, the security company can simply sell the shares in the market, requiring the investor to pay up the trading loss only, if any. The credit limit system also allow investors to do the CONTRA – buying and selling prior to settlement – easily, without getting the full payment involved, which in turn increases market activity.

According to SECM, they also did the identification and selection of potential companies to be listed on the exchange. It is also appropriate since most of the local businesses might not approach the exchange or security companies on their own initiatives. SECM reach also expands to public companies with at least 100 shareholders, now nearing 50. All in all, among these public (not yet listed) companies, approximately 75% of them has an ‘Insufficient’ compliance rating by the SECM. The companies themselves have a long way to go.

The sole purpose of SECM is stated on its website, “structuring, developing and promoting Myanmar Capital Market”. SECM has its work cut out. Even catching up with Cambodia would be an extremely tough row to hoe!