Development of Myanmar Industry

and Significance of Inauguration of YSX

Shigeto Kashiwazaki

Head, Asian Business Development Group

Daiwa Institute of Research Ltd.

Ⅰ. Steady economic growth in Myanmar

Amount of Foreign Direct Investment (in mil USD)

FY2011 FY2012 FY2013 FY20142015

(Apr-Dec)

*FY2015

(Left×4/3)

Agriculture 10 20 40

Livestock & Fisheries 6 96 27

Mining 20 15 33 6 2 3

Manufacturing 32 401 1,827 1,502 725 966

Power 4,344 364 47 40 47 63

Oil and Gas 248 309 3,220 2,049 2,732

Construction 0

Transport & Communication 1 1,190 1,679 1,599 2,132

Hotel and Tourism 300 435 358 113 150

Real Estate 441 781 240 319

Industrial Estate 10 13

Other Services 15 19 357 132 175

Total 4,645 1,420 4,108 8,010 4,916 6,554

Source: DIR (Made from CSO data)

Myanmar has been undergoing steady and continuous economic growth after the transition to democratic

government in 2010.

The strongest factor is continued aggressive foreign direct investments inflow.

Investments overseas for oil & gas development marked the beginning.

Telecommunication sector has also developed rapidly due to allowing foreign businesses to get a license.

Influx of foreign businessmen/women associated with the FDI expansion has promoted housing & construction

sector’s growth.

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Ⅱ. Manufacturing presence remains unchanged

Go sideways

Share of manufacturing to total value added in Myanmar has leveled off since 2010.

Manufacturing sector has been facing slow growth compered with oil & gas, telecommunication and construction.

Insufficient infrastructure is behind --- such as electricity shortage and inadequate logistics.

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Ⅲ. Structural change – shift toward industrialized country

Current 10-15 years later

1. Automobile and

components

2. Electric appliance

3. Electronics

components

6. Steel

Knowledge

intensive

Labor

intensive

5. Petrochemical

Soft infrastructure (Capacity building, SME development, Promotion of FDI,

Protection of intellectual property )

【Infrastructure related】

6. Food processing

7. Tourism

1. Agriculture

4. Textile & garment

2. Fishery

3. Forestry

5. Rubber

1.Electricity, 2.Transportation, 3.Telecommnunication, 4. Logistics,

5.Finance (Bank, Insurance, Capital market), 6.Construction

4. Chemical

Transition of primary industry --- toward Manufacturing

Myanmar will shift its center of industry toward full-fledged manufacturing during next one or two decades.

To that end, it is essential to promote greater foreign investments and secure smooth funding place.

Yangon Stock Exchange, as a full-fledged capital market has been desired for further development of Myanmar .

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Stock Exchange of

Thailand (1974)Ho Chi Minh Stock

Exchange (2000)

Hanoi Stock

Exchange (2005)

Lao Securities

Exchange (2010)

Cambodia Securities

Exchange (2011)

Bursa Malaysia

(1964)

Philippine Stock

Exchange (1927)

Indonesia Stock

Exchange (1977)

Singapore

Exchange (1973)

Tokyo Stock

Exchange (1878)

Mongolian Stock

Exchange (1991)

Hong Kong Exchanges

and Clearing (1914)Yangon Stock

Exchange (2015)

Shenzhen Stock

Exchange (1990)

Korea Exchange

(1956)

Shanghai Stock

Exchange (1990)

Taiwan Stock

Exchange (1961)

Source: DIR

There were only three countries left without a stock exchange in East/Southeast Asia (Myanmar, Brunei, and

North Korea) in 2015.

In 2016, Yangon Stock Exchange (YSX) finally started stock trading.

Ⅳ. Inauguration of stock exchange in Myanmar

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Ⅴ. Establishment of YSX JV Company and Opening of YSX

Yangon Stock Exchange Joint-Venture Company Ltd. was established as a operating body, jointly held by

Myanmar and Japan. (Total share capital: MMK 32bn)

[Shareholders] Myanmar: Myanma Economic Bank (MEB) Japan: Daiwa Institute of Research, Japan Exchange

Group

MEB’s Managing Director concurrently serves as the MD of YSX. (with 15 Myanmar employees and 6 Japanese

advisors)

The JV company prepared for starting stock trading. (legal framework, building renovation, ICT system

introduction, operation procedures etc.)

YSX’s opening ceremony was held in December 2015 (meeting Myanmar government’s target year)

Japan’s first project to establish a full-fledged stock exchange overseas. (capital market development project by

cooperation among the Japanese government and the private sector)

YSX has already become a touristic spot in the city, with frequent financial educational seminars.

I. Establish YSX as a symbol of economic development, which appeals to the general public and the international community.

i. Locate it in Yangon as a sole stock trading place for the time being

ii. Reside in the former Central Bank of Myanmar Headquarter building or its equivalent

iii. Ensure visual presence for media and the public with internal/external decoration and signboards

iv. Place it as a symbol of Myanmar’s financial market centre

II. Ensure independent operation by Myanmar staff through skill transfer at an early stage.

Realise operation by local Myanmar staff without Japanese advisors, by skill transfer (of trade monitoring, listing examination,

ICT system management etc.) from the Japanese side

Seven Principles for YSX Establishment

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III. Simplify trading rules to lower costs and entry barriers to stock trading.

i. Introduce periodic matching at certain time in the beginning, while considering early introduction of continuous matching

ii. Standardise trading units, and settlement of transactions in T+3

iii. Simplify trading rules and computerise processes to lower trading costs

IV. Adopt a practical listing requirement that reflects real situation of emerging economies.

i. Formulate listing criteria that leads to development of a vibrant market, while considering its soundness

ii. Target to list 10 to 20 companies in a few years after opening

V. Computerise operation to enable efficient trading and minimise errors.

i. Think outside the box of existing exchanges and their functions in developed economies

ii. Internalise sequential procedures (from ordering, matching, clearing, settlement, delivering to depositing) in to YSX’s ICT

system to enable efficient operation, to reduce costs, and to maximise revenue

iii. Establish a computerised workflow to minimise room for human errors

iv. Realise dematerialization of share certificates so as to prepare for enormous clerical work in the future

VI. Adopt a cutting-edge framework for ICT system development.

i. Adopt open-source cloud technology to simplify future system maintenance and to enable adoption of new technology

ii. Equip a reasonable capacity in the beginning, while allowing future strengthening in line with increase of trading volume

iii. Focus on minimising future costs for ICT system upgrade

VII. Establish YSX as a limited company by shares , and diversify revenue sources for growth in value.

i. Secure a reasonable share for the Japanese side, while the Myanmar side holds the majority

ii. Diversify YSX’s revenue sources as much as possible to maximise its corporate value in a reasonable term

iii. Develop market indice and a database for prices, volumes, and values, with focus on distribution of such information

Seven Principles for YSX Establishment (continued)

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(AppendixⅠ: Photos from the opening ceremony)

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Ⅵ. Securities companies and candidates for listing

[Securities companies] Five companies with a full license (10 companies received a provisional license)

MSEC (Myanmar Securities Exchange Centre), KBZ SC Securities and three others (mostly subsidiaries of major

commercial banks) have started their business.

The remaining five companies (with a provisional license) are expected to be operational in one to two years.

[Candidates for listing] Six candidates nominated in Dec 2015, and three of them listed as of Sep 2016

The three remaining candidates and a few new ones are expected to be examined for listing in FY2016,

depending on circumstances.

Listing criteria are not very severe (see next slide).

Listing of 20-30 companies is expected in a few years.

[Overview of the six candidates nominated by the Myanmar government]

Listed on 25 March

Listed on 20 May

Listed on 28 August

First Myanmar Investment Co., Ltd.Conglomerate (construction-

to-healthcare)

Myanmar Thilawa SEZ Holdings Public Limited Industrial estate

Myanmar Citizens Bank Bank

First Private Bank Bank

Myanmar Agribusiness Public Company Limited Agri-business

Great Hor Kham Public Co., Ltd. Construction 8

(AppendixⅡ: Yangon Stock Exchange’s listing criteria)

1 It shall be a registered company limited by shares in accord with the Myanmar Companies Act, conducting the business in line with the public company's

features and procedures.

2 It shall have at least 100 shareholders and above.

3 Paid-up capital shall be the minimum of kyat 500 million on the date of application.

4 It shall have the profit at least 2 years during the period of before the date of application.

5 The business shall have the stable basic income and conduct in accordance with the existing laws.

6 The Board of Directors and the heads of the company shall be in good character and have not been having any punishment by a court, in addition, have not

been facing any lawsuits. They shall perform their duties and responsibilities with well-prepared, in good-faith and fairly in line with the laws.

7 The Board of Directors and the heads of the company shall not act any deceptive manners by the public for the interest of the company and self-interest.

8 Each Director of the public company shall not do any business which has the same interest carrying out by the public company, except with the approval of

Shareholder meeting.

9 The company, the Board of Directors and the heads of such company shall not be included in the black list of any public and government organizations.

10 Book-keeping of accounts and auditing of the company shall be undertaken in accordance with the Myanmar Accounting Standards and Myanmar Standards

on Auditing.

11 The company shall fulfill tax duties in accordance with existing tax laws of Myanmar.

12 The disclosure of relevant corporate information and the facts that the public should be known, shall be disclosed and submitted to the Securities Exchange

Commission of Myanmar and Yangon Stock Exchange, besides it shall be disclosed and announced to the public by means of easy understandable and best

suitable ways in timely manner. For disclosure of corporate information, it shall prescribe especially and precisely on the matters which have a considerable

impact on investment decisions of the investors, such as the risk factors for the potential loss and the basic potential business activities.

13 It shall set up an effective system to comply with laws, rules and regulations by appointing the compliance officer.

14 It shall have business plan containing business design, business process environment and the risk factors.

15 It shall set up a system to prevent the insider trading.

16 It shall continuously operate and manage stably without any influence by keeping soundness of good corporate governance, internal management and

internal control system.

17 It shall have rational expectation to get a profit base upon stable revenue.

The criteria above are minimum standards to be referred as a general guideline for public companies. YSX will grant listing permission only after YSX

receives listing application submitted by a public company and YSX confirms the company’s eligibility of listing in term of protecting interests of general public

through conducting examination.

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Ⅶ. Market summary and expected development of YSX

With the first listing on 25 March 2016, trading started smoothly

In the first week, securities companies’ counters were flooded with new customers seeking to open an account.

Myanmar’s market is much vibrant in comparison with those of Laos” and Cambodia’s.

The second and third listing companies also stimulated stock trading for a while.

Meanwhile, the market somewhat calms down after a few weeks each time of listing, and the market price is in a

declining trend for all the three companies.

As the trade volume increases and companies’ profits grow, the share prices are expected to go up again.

As YSX welcomes new listed companies, the market is expected to expand with more vibrant trading.

Further market development is expected, including opening to foreign investors

In addition to increase in the number of listed share, development of fixed income products, mutual funds and

institutional investors are expected in a few years.

As the trading volume grows, the capital market becomes a viable source of domestic fundraising in Myanmar.

Revision of Myanmar Companies Law and Myanmar Investment Law will likely enable foreigners to invest in local

companies.

In a few years, YSX will likely open its door for foreign investors to purchase shares in the market.

Also, joint-venture companies (of local and foreign companies) may be permitted to be listed.

Hence, being listed at YSX may provide a viable avenue for exiting direct investment in Myanmar in the near

future.

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(AppendixⅢ: Comparison of markets and photos of first trading day)

[YSX: Commencement of Trading]

Myanmar （YSX） Lao （LSX） Cambodia （CSX）

Start-up date March 2016 January 2011 April 2012

Number of listed

companiesThree (3) Five (5) Two (2)

Listed products Shares Shares Shares

Number of Securities

companiesFive (5) Two (2) Eleven (11)

Trading hours 9：30～13：008：30～11：30

(only morning session)

8：00～11：30

(only morning session)

Pricing systemAuction at certain time

（11:00, 13:00: twice a day）

Auction at certain time

+ Continuous session

Auction at certain time

⇒ Continuous session

Foreign investment Not available Available Available

[Comparison with Markets in Laos and Cambodia]

[Securities Company’s Counter]

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