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The Road to Myanmar

Thailand’s largest oil and gas firm, PTT Pcl, which has significant representation in MSCI Thailand Investable Market Index Fund (AMEX:$THD) is moving into Myanmar’s oil retailing by partnering with a local firm as the country opened its doors to foreign investment following the cessation of US trade sanctions after 60 years. Presently, PTT is involved in upstream oil operations in Myanmar.  According to reports, the company will now operate under its subsidiary PTT Oil Myanmar which will operate in oil retail, wholesale, storage and transport.

Myanmar, formerly known as Burma, used to be one of the richest countries of the world until 1962 when it closed its doors to foreigners after the beginning of socialist rule under the military. Presently, the country’s per capita GDP (PPP) is just ~$1300, which makes it the second-poorest country in Asia, even though it is located at the intersection of regional economic powerhouses of China, India and Thailand.

China is the biggest investor in Myanmar with $14.14 billion in investments through August of this year, more than one-third of the total foreign investment in the country.  Nearly 63% of it went into the country’s power sector. In the recent China-ASEAN expo held in the last week of September, Myanmar was invited as “the country of honor” and Myanmar responded by sending its Premier, President and other top officials to the meeting.

Interestingly, the response from Chinese businesses to Myanmar’s liberalization policies has been lukewarm at best. Although government officials from both sides have signed several documents and MoUs, the details have not disclosed. Last year, Myanmar surprised China by halting construction of a Chinese SOE backed $3.6 billion hydropower dam in Myitsone after the project received criticism from local communities and opposition parties. According to China Daily, the biggest Chinese concern is the rising competition in Myanmar’s market, specifically by western companies, who come as a direct threat to the Chinese businesses already operating. Myanmar is trying its best to allay Chinese concerns which is evident in the frequent meetings between the officials of the two countries.

Western companies such as General Electric (NYSE:$GE), Exxon-Mobil (NYSE:$XOM) and Coca-Cola (NYSE:$KO) have already started establishing operations in the country following the meeting of US Secretary of State Hillary Clinton with Myanmar’s President Thein Sein. GE is currently looking to invest in the health care sector providing medical equipment to the country’s hospitals, although its driving force in ASEAN has been the energy sector. In July this year, GE signed $2 million worth of deals with two private hospitals.

However, investors are generally cautious as Myanmar’s fiscal and monetary policies remain unclear. To tackle this issue, Myanmar’s central bank has been tasked with devising an independent monetary policy by the first half of 2013 while the country’s parliament is expected to pass a bill next month that will guarantee the central bank’s authority and independence. Meanwhile the IMF and the Bank of Thailand are working on providing training to the country’s officials to carry out economic tasks.   

Though it began earlier in the year, de-dollarizing Myanmar’s economy is going to take a long time. The Kyat only began officially floating versus other currencies on July 24nd of this year.  Since it began the Kyat has appreciated 2.23% versus the US Dollar.  But that said more than 90% of all commerce done in Myanmar is done in U.S. Dollars.  The process of the central bank gaining control over the situation will be a long one.  Vietnam is still struggling with de-dollarizing as is Cambodia.

According to Asian Development Bank, Myanmar’s economy may grow by as much as 8%, if it delivers on its promises. There are immense opportunities in the country but it lacks basic infrastructure, including skilled labour. Just over a quarter of the country’s total population has access to electricity while its internet and mobile phone penetration is one of the lowest in Asia. This is a hurdle towards achieving short term gains for foreign investors.   

At this point the biggest hurdle may simply be being able to find a hotel room.  The capitol, Yangon, has been short of hotel space for the past two years ever since the ice began to thaw and the most adventurist of venture capitalists were getting the lay of the landscape.

Earlier this year, the Indian Prime Minister Manmohan Singh visited his neighbor Myanmar, thefirst visit by the highest ranking Indian official in 25 years as India is helping Myanmar to develop a port in Sittwe, Rakhine State and a $214 million transportation network. The new network is going to become a primary trade route for India’s landlocked northeastern states. India’s bilateral trade with Myanmar has increased by 30% y/y to $1.4 billion while the two countries are aiming to push this figure to $2 billion by 2013. Currently, India is one of Myanmar’s leading export markets after China and Thailand. Unlike China, India and Myanmar have s shared culture going back thousands of years to the Buddhist leader Ashoka.

Japan, on the other hand, is also looking for investment opportunities in the country as the Japanese Members of Commerce and Industry have recently held meetings with Myanmar’s Investment Commission in late September. The country has invested just $211 million in Myanmar but the Japanese believe that as soon as Myanmar overcomes the problems of uncertain policies and provide soft infrastructure then the Japanese investments would flow into the country. Presently, it is aiming to invest in small and medium-sized enterprises (SMEs).

This week, Myanmar’s president held a meeting at his residence with the powerful pro-Myanmar Japanese politician, Hideo Watanabe and offered him an attractive investment opportunity. Japan has been offered to construct an economic zone in Thilawa, near the country’s major city and the Indian Ocean port, if it agrees to finance the project.

And it is Japan that recently stepped into the mix to invest in the major $50 billion deep sea port project at Dawei, directly west of Bangkok that has seen a number of setbacks. The project, if it can finally get started would literally change everything about how goods are distributed around the Indochina peninsula.

For investors looking to invest in Myanmar, the country is not represented in any ETF but its leading trade partner, Thailand through its ETF or companies such as PTT Energy (SET:PTTEP).  PetroChina is in charge of building the oil and gas pipeline from Kyaukpyu to Kunming. Indirectly investing in ASEAN itself through the Global X FTSE ASEAN 40 ETF (AMEX:$ASEA) is a possibility as well.  It focuses on Singapore, Thailand, Indonesia, Philippines and Malaysia. 

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Peter Pham is an author, international fund manager, and a registered financial director by the Cayman Monetary Authority (CIMA). In 2013 he published his first book entitled, The Big Trade: Simple Strategies for Maximum Market Returns. He currently manages the portfolio of a global hedge fund and runs an asset management company, Phoenix Capital.  (read more)

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