Thematic Investments: Emerging Markets
Burma and the New Crossroads of Asia

   


Rationale
  • After suffering decades under military regime, with her citizens having to cope with catastrophic, painful and whimsical change, Myanmar is now back on the world map and is finally embarking on the road to democracy. Former military junta leader General Than Shwe’s retirement plan has shifted senior military leaders into politics and replaced them in the army with their subordinates, transferring power from the military to the President, his ministers and Parliament. This transfer of power leads many old school Myanmar watcheers to believe that the least likely future outcome is a return to a military junta. The appointment of the reformist, clean President Thein Sein has been a perfect catalyst for change. President Thein Sein has succeeded in winning over political opponents and political leader and Nobel Laureate, Aung San Suu Kyi has embraced the reforms under way, stating her trust in him while her political party, the National League for Democracy (NLD), has now registered for her to run for Parliament in April as a MP.
  • The holding of acceptable by-elections, the further release of political prisoners and progress towards ending the war with ethnic rebels means a potential end to sanctions is on the horizon. After Aung San Suu Kyi was released from house arrest in late 2010, last year Myanmar held its first national election in more than two decades. In November 2011, Hillary Clinton became the first US Secretary of state to visit Myanmar in more than 50 years and last month, Norway became the first European country to lift trade, investment and tourism sanctions on Myanmar when US senators McCain, Lieberman and McConnell were visiting as well. With high profile visits from US and European senior statesmen, the end of global sanctions may quickly follow and the task of transitioning Myanmar into a market based economy may soon begin in earnest.
  • Simple geography anchors Myanmar’s importance as it sits between China and India which creates a massive crossroads between the two powerful emerging nations where 60% of global growth exists this year. Myanmar’s land mass of 676,578 sq km is about the size of France, which is twice the size of Vietnam and 30% larger than Thailand. She also has a coastline of 1,900 km which provides the country access to both the Bay of Bengal and the Adaman Sea. While the country has diverse and massive natural resources, Myanmar’s other important strength is her people; a population of around 60 million people who have an adult literacy rate at about 90% with the median age below 30 years. If you draw a 700-mile radius around Mandalay, Myanmar’s second largest city, you encompass a population of 700 million people which is about 10% of the world’s population. With her common borders among five countries in Asia, Myanmar has direct access to 2.6 billion people or 40% of the world’s population.
  • Despite being one the poorest and least developed countries in the world, in the 1930’s the then Burma was reportedly the second wealthiest country in South East Asia and the evidence of this can still be seen in the capital city of Yangon. Myanmar is endowed with a rich supply of natural resources such as timber, oil, natural gas and gemstones. Wages are currently the lowest in Southeast Asia and the former British colony has a legal system rooted in British common law. Until the 1960’s, English was the language of instruction and in the 1980’s was reintroduced to the educational system as a second language. Freedom of expression has improved considerably and the press is able to criticize the government without retribution. There is very little serious crime in Myanmar and is a very safe place to live.
  • Yangon currently gives you a sense of what it was like in Bangkok in the 1970s. It is home to 4 million inhabitants who share a traditional Buddhist cultural background and feels like a large city that has that vibrant “can do better” feel that makes Asian cities so interesting. The abundance of old colonial buildings and the magnificent Shwedon Pagoda adds a touch of glamour and mystique and are currently under Presidential plan to establish Yangon as a place of cultural heritage. The potential for tourism is high. The splendid ancient city of Bagan, the peaceful Inle Lake and the beautiful Ngapali beach are also likely to attract tourists. Myanmar is currently visited by only about 300,000 tourists per year, versus 15 million in Thailand. Aung San Suu Kyi is now encouraging tourists to visit Myanmar and the Lonely Planet Guide has ranked it second in its “Top 10 Countries for 2012”.
  • Many savvy investors are currently rushing to Myanmar to understand the changes which are going on; those who were involved in the similar gold rush in Vietnam in 1994 after the lifting of sanctions know that the challenges and opportunities are enormous. Normally in the process of opening up market economies there are 6 areas policy makers focus on; liberalizing and privatizing the economy, making the exchange rate uniform (currently there are more than 5 different exchange rates used in the country), legislating foreign investments, setting up a developed banking system and national stock market (already in progress with the tie up between Daiwa and the Tokyo Stock Exchange in 2015), improving infrastructure and finally, safeguarding property rights and plot ratios.
  • While a lot of work needs to be done and currently only diplomats, aid workers, and neighboring corporates are looking at expanding their influence in Myanmar, early stage private equity and frontier investors are now actively engaging in finding investment opportunities. The foundation of the investment case is built on its vast natural resources, abundant labor supply and its establishment of Special Economic Zones (SEZs). Myanmar’s transition to a market based economy will enable her to sell her resources to the entire world. While the country is already benefitting from trade with China, the US and its Western allies will most likely do all they can to see the country flourish, holding it up as an example of a budding democracy to be emulated throughout the region. Myanmar is following the Chinese economic development model by establishing its own version of Special Economic Zones (SEZs). With the benefit of hindsight, many Asian policy makers and China-hands believe that SEZs effectively jump started China’s economic miracle over the subsequent decades. For countries where labor is abundant and wages are low, SEZs are very effective in absorbing excess labor supply, providing jobs, improving local infrastructure and generating tax revenues to the local government – all of which are essential ingredients for generating and maintaining economic growth in the long term.
  • As there is currently no liquid, transparent real stock or fixed income exchange in Myanmar, it is very difficult to gain direct stock investment exposure to Myanmar. Still, Q.M.S Advisors has created a tradable basket that gives you exposure to this secular theme by identifying those companies that should benefit from Myanmar's ascent. Q.M.S Advisors singled out a range of ASEAN companies across industries that are set to benefit from this enormous opportunity, as all those have positioned themselves at the early stages of Myanmar's renaissance.
  • Identifying important changes and fundamental catalysts is the foundation of successful investing. During a CNBC interview last November, the well known global investor Jim Rogers, said the following: “I am wildly bullish on Myanmar, if I could find a way to put all of my money into Myanmar, I probably would. It is a place where China was in late 1978; they are opening up, they’ve changed. I cannot think of anything in the world about which I’m more bullish than Myanmar.”
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Q.M.S Advisors - EM Frontier: Myanmar Basket   2078k v. 10 Nov 25, 2013, 11:31 AM QMS Advisors
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SET Thai 50 Index Members  3563k v. 9 Nov 25, 2013, 11:32 AM QMS Advisors