June 24, 2012
By Jeff D. Opdyke
Dear Sovereign Investor,
There are no motorcycles in Yangon.
Not a one. Anywhere.
That makes this Asian city unique. Bangkok, Jakarta, Phnom Penh, Shanghai … even Myanmar’s capital of Nay Pyi Taw… are all overrun by motorbikes and scooters. The legend here is that a motorcycle hit an army general’s car five years ago, and in turn he immediately outlawed the two-wheelers in the city.
Who knows how true the legend is? What matters is how it speaks to the stranglehold the military government once had on this long-closed and secretive country wedged between India and China.
Now, however, the military has stepped aside. The generals have traded their uniforms for civilian attire. Mynamar is opening up… and early investors who come here while the place is still gritty and addled by obstacles will see small investments grow into fortunes.
That’s exactly why I came to Yangon – to confirm for myself that this is the place investors like us want to be positioned… before the rest of the world arrives.
And trust me, the rest of the world is already on its way…
Myanmar Has Gone From No-fly Zone to Must-See List Overnight
Erika and I showed up at the Park Royal Hotel for the 2012 Myanmar Investment Summit not knowing what to expect. The country has only been open to the outside world for a few months, and only this spring did it hold its first free elections in 60 years.
We were shocked at what we found – a ballroom packed with more than 300 attendees from more than 20 countries. Representatives from Dole, General Electric, Baker & McKenzie and Dow Chemical were here. So, too, were major energy companies including Thailand’s PTT, Italy’s Eni (a holding in The Sovereign Individual portfolio that’s up 85.97%) and Norway’s massive StatOil.
U.S. Embassy officials we met with in Yangon are genuinely awestruck by the magnitude, scope and speed of the political reforms that began when the military junta stepped aside in 2010. Those reforms have accelerated in recent months, with the release of political prisoners and the push for sweeping financial, economic and social changes.
At America’s lakeside embassy compound, a local official told us the U.S. is being invited into meetings at all levels of Myanmar government – something previously unheard of.
America is so convinced of the authenticity of Myanmar’s new attitude that, in April, the Obama administration began to ease long-standing sanctions. I’m now hearing that the U.S. Treasury Department is only weeks away from issuing the license necessary to remove all sanctions and open Myanmar to the Western world. I’m looking for that to occur just before or during a July U.S./Asean summit in Yangon.
The Big Question: Why Did Myanmar Open?
It’s curious how quickly Myanmar dumped its dictatorial past and embraced democracy and the beginnings of capitalism. It has all happened in the span of months.
Some people say the Arab Spring scared Myanmar’s aging, military leaders. But that seems off base, given that the Arab Spring didn’t start rolling until 2011, and Myanmar’s generals took off their uniforms in 2010.
The real reason, I think, is that the military leaders have suddenly become capitalists. It’s all about money.
First, thanks to U.S. and European sanctions, Myanmar’s trove of natural resources has been largely China’s playground. In the last decade, for instance, China’s investment in Myanmar’s oil-and-gas sector exploded to more than $13 billion, from just $67 million. China now represents a substantial 44% of the cash flowing into Myanmar’s energy industry.
Yet the Chinese, given their ruthless opportunism, have not offered Myanmar the best deals – and Burmese leaders know this. Opening to the West, they recognize, will bring in heated – and much-needed – competition that will raise prices for the country’s assets, and dump barrels of cash into the economy.
Second, the opening of Myanmar is effectively an IPO for the country, and many of the dollars will land in the pockets of all those former generals – the ones who have spent the last six decades lining their pockets with beachfront property, agricultural land, mining concessions and the like.
Western developers who come into the country will have no choice but to negotiate with the businesses the generals have since established to monetize their assets.
It’s not the most savory situation. But, this is Myanmar’s only road to a better future. That’s why Secretary of State Hillary Clinton and Myanmar’s most-famous dissident, Aung San Suu Kyi, have both called for Western companies to begin investing in Myanmar, but to do so in a socially-aware manner.
The Rush Has Already Begun
Coca-Cola just this week announced its plan to rebuild official relations with Myanmar after a multi-decade absence. And, the U.S. Embassy official told me that so many American and European companies in energy, telecom, infrastructure, the consumer sector and other industries are flooding through the country these days that embassy visitors in the past six months alone “probably topped our total number of visitors in the past 10 years.”
The moment the Treasury lifts all sanctions, you can expect to hear about all kinds of companies rushing to establish operations in Myanmar.
You might be skittish about Myanmar. It is the epitome of a bleeding-edge and risky frontier market. But one of the keys to investment success is diversification.
Look around today… as stock exchanges in New York, London, Paris and elsewhere post losses, Colombia, Kenya, Pakistan and others are posting big gains. They’re all largely moving based on internal dynamics that are disconnected from the West. Myanmar will prove to be a market that is highly non-correlated to the West, just as most frontier markets are.
A former central bank official told me that direct investment in Myanmar won’t be open to foreigners for a few more years… but that doesn’t mean the country is off limits. On Monday, I’ll tell you why energy is one of the places I want exposure to as an investor in Myanmar.
Until next time, stay Sovereign …
Jeff D. Opdyke
P.S. Visiting Myanmar firsthand is one of the big reasons I’ve come on my current trip to Southeast Asia. Myanmar is sitting on a $1 trillion goldmine of resources, and with the recent political changes opening it for business, it could be well on its way to being one the richest nations in the region. As I said, investing there directly isn’t an option at the moment, but there are still ways to make a play on Myanmar’s future, today. I’ve just released a special in-country report about one of the best opportunities I see to make a play on this “Pearl of Asia” right now – click here to learn more.
Photo Credit: Google Images