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Asean's Frontier EconomiesThe next stage of growth for Cambodia, Laos, Myanmar and Vietnam
December 8, 2016 | bloombergbriefs.com
Special Edition 2 Dec. 8, 2016
IntroductionBy Tamara Henderson, Bloomberg Intelligence EconomistAsean's frontier economies Cambodia, Laos, Myanmar and Vietnam are among the world's fastest growing. These are the region's low income economies, each at a different stage of transformation but all following an export-led growth strategy. This makes them vulnerable in the short-term to the particularly challenging external environment.
Low labor costs have attracted foreign direct investment, which spurred the increase in export shares for CLMV countries. This is in contrast with a decline in exports as a share of GDP for China and most of Asean over the last decade. Exports amount to nearly 90 percent of Vietnam's economy compared with one-third in 1995 and about two-thirds a decade ago. Exports are almost 70 percent of Cambodia's GDP, more than twice the share in 1995, and 35 percent of Laos's economy compared with 22 percent for China.
Open economies are more sensitive to external shocks. Asean's frontier economies are even more vulnerable because CLMV exports and imports tend to be concentrated in a small number of products and markets. The bulk of Cambodia's exports are garments, with the former French colony relying on China, Thailand and Vietnam for more than 60 percent of the inputs for garment production, according to the IMF.
Laos and Myanmar primarily export commodities. Nearly 65 percent of Laos' exports were shipped to Thailand and China in 2015, while the same two countries accounted for 80 percent of imports. China and Thailand also account for the majority of Myanmar's exports and imports. The exception is Vietnam, which exports a more diverse range of goods, including commodities, garments and electronics. Like Cambodia, most of Vietnam's production is destined for the advanced economies.
With the external environment appearing increasingly challenging, slower growth in CLMV in 2017 is likely. A further slowdown in China would weigh on the region's exports, especially Laos and Myanmar which are heavily reliant on China's commodity demand for investment goods. Cambodia and Vietnam are better-suited to benefit from China's rebalancing toward consumption as they export a larger share of consumer goods that will benefit. All of CLMV will benefit from a larger influx of Chinese tourists.
U.S. President-elect Donald Trump's threat of a trade war with China has scope to diminish risk appetite and stall private investment. But China's response to the Trump Administration may be to deepen investment links in the region. Further FDI inflows could help these countries diversify their export bases and integrate them into the global supply chain, following Vietnam's example.
The increasingly challenging external environment may have a silver lining for CLMV if the commitment to reforms is strengthened as a result. The impetus behind Asean's building of an economic community was to reduce the vulnerability of its members to external shocks. There has never been more of an incentive to reduce this sensitivity.
Big PictureAsean's frontier economies are being transformed through trade with China: page 3
FactsheetsCambodia: page 4Laos: page 5
MyanmarFactsheet: page 6
The country's central bank braces for a deeper slide in the currency: page 7
Q&A: page 8
VietnamFactsheet: page 10
Hanoi is pushing ahead with trade agreements: page 11
Former refugees return to found startups: page 12
BI InsightsVietnamese auto sales rise as Laos and Myanmar increase cement production capacities: page 13
Q&AThomas Hugger, chief executive officer, Asia Frontier Capital: page 14
Inside
Bloomberg Briefs: Asean's CLMV Frontier
Bloomberg Brief Managing Editor
Paul Smith
Economics Asia Editors
Nathaniel E. Baker
Colin Simpson
Graphic Design
Pekka Aalto
Bloomberg News Managing Editor
Linus Chua
Hanoi Bureau Chief
John Boudreau
SE Asia Economy Team Lead
Nasreen Seria
BI Asean Economist
Tamara Henderson
Marketing & Partnership Director
Courtney Martens
+1-212-617-2447
Reprints & Permissions
Lori Husted
+1-717-505-9701 x2204
Advertising
Lucy Rosen
+1-212-617-6759
Interested in learning more about
the Bloomberg terminal? Request a
free demo .here
© 2016 Bloomberg LP.
All rights reserved. This newsletter
and its contents may not be
forwarded or redistributed without
the prior consent of Bloomberg.
Please contact our reprints group
listed left for more information.
Big Picture
Asean’s Frontier Economies2
Special Edition 3 Dec. 8, 2016
Big Picture
China Is Transforming Asean's Frontier With Cash for Rails to PowerBy David Roman, Bloomberg News China’s investment is transforming its smaller Southeast Asian neighbors like never before while helping turn Cambodia, Laos and Myanmar into bigger destinations for its exports.
That’s driving some of the world’s fastest economic growth rates and providing Chinese companies with low-cost alternatives as they seek to move capacity out of the country. It’s also helping Asia’s largest economy and smaller nations in its orbit adapt to what looks more and more like a new era of waning U.S. commitment to the region from a more inward-looking administrationof President-elect Donald Trump.
"China’s definitely looking at these countries in general as an area where it can sell products and get good return for its investments," said Edward Lee, an economist with Standard Chartered Plc in Singapore. "China itself is getting more expensive for its companies, and that’s reinforcing this trend."
China is investing in everything from railroads to real estate in Cambodia, Laos and Myanmar — the frontier-market economies of the Association of Southeast Asian Nations. China Minsheng Investment Group and LYP Group signed a $1.5 billion deal last week to build a 2,000-hectare city near Phnom Penh, the official Xinhua News Agency reported. The spending equals roughly one-tenth of the country’s $15.9 billion GDP. In landlocked Laos, work started last year on the China-Laos railway, which will stretch 414 kilometers (257 miles) from the border to the capital, Vientiane. The project, part of Xi’s One Belt, One Road initiative, will cost $5.4 billion, according to Xinhua.
Myanmar, which is liberalizing its economy and adopting market reforms after a transition to democracy, is forecast by the IMF to expand 8.1 percent thisyear, the fastest in the world after Iraq. De-facto leader Aung San Suu Kyi has beenquick to engage China since taking office this year, including visiting Xi in Beijing. China is its largest trading partner, accounting for about 40 percent of Myanmar’s total last year, and is building a special economic zone, power plant anddeep water seaport on the west coast.
-
Cambodia’s economy is projected to grow 7 percent this year, while Laos is set for 7.5 percent expansion. Faster growth has also translated into rising income levels and lower poverty. Based on the most recent data from the World Bank, the number of people living on $1.90 a day in Cambodia dropped to 2.2 percent of the population in 2012 from 30 percent in 1994. In Laos, the poverty rate is 16.7 percent, down from 22.9 percent in 1992.
As Sino-Cambodian relations have flourished, so has trade, with two-way commerce climbing to $4.8 billion last year. That’s more than double from 2012, the year Cambodia warmed up to Beijing by opposing mention of China’s assertiveness in the South China Sea.
Most Chinese money flowing in to Cambodia, Laos, and Myanmar is lending on highly concessionary terms to finance construction projects run by Chinese firms, especially in Laos, said Derek Scissors, Washington-based chief economist at China Beige Book International, who specializes in studying the country’s foreign investment. Chinese construction and investment since 2005 equal about 15 percent of Lao GDP, which it couldn’t have financed from other nations, he said.
The share of the Lao population with access to electricity rose from 15 percent in the mid-1990s to almost 90 percent in 2014, though the power grid increasingly faces new challenges from demand growing by an average of 13 percent a
year, according to a World Bank report.Cambodia, Laos and Myanmar are
becoming more incorporated with China’s supply chains, buying intermediate goods from its factories and selling consumer items such as garments and shoes that are often made by companies owned or funded by China. Its imports from the three Southeast Asian economies more than doubled in the past five years, IMF data show.
Such dependence on China isn’t without risks. Beijing accounts for the largest chunk of foreign investment in Cambodia and also about 43 percent of the country’s total debt stock, mostly in loans from Chinese development banks to Cambodia’s government, according to the IMF. Similarly, China’s railroad in Laos equals about half of its $10.5 billion 2015 GDP.
Cambodia has gained particular appeal for Chinese manufacturers seeking to relocate, which aligns with China’s strategy to export industrial capacity through initiatives such as One Belt, One Road. Cambodia’s $121 average monthly wage is just a fifth of China’s $613 average, according to the International Labour Organization in Geneva.
The biggest risk for frontier Asean economies is that Chinese inflows create "extractive" elites who entrench themselves in power, said Song Seng Wun, an economist at CIMB Private Banking in Singapore.
Love Thy Neighbour
Special Edition 2 Dec. 8, 2016
IntroductionBy Tamara Henderson, Bloomberg Intelligence EconomistAsean's frontier economies Cambodia, Laos, Myanmar and Vietnam are among the world's fastest growing. These are the region's low income economies, each at a different stage of transformation but all following an export-led growth strategy. This makes them vulnerable in the short-term to the particularly challenging external environment.
Low labor costs have attracted foreign direct investment, which spurred the increase in export shares for CLMV countries. This is in contrast with a decline in exports as a share of GDP for China and most of Asean over the last decade. Exports amount to nearly 90 percent of Vietnam's economy compared with one-third in 1995 and about two-thirds a decade ago. Exports are almost 70 percent of Cambodia's GDP, more than twice the share in 1995, and 35 percent of Laos's economy compared with 22 percent for China.
Open economies are more sensitive to external shocks. Asean's frontier economies are even more vulnerable because CLMV exports and imports tend to be concentrated in a small number of products and markets. The bulk of Cambodia's exports are garments, with the former French colony relying on China, Thailand and Vietnam for more than 60 percent of the inputs for garment production, according to the IMF.
Laos and Myanmar primarily export commodities. Nearly 65 percent of Laos' exports were shipped to Thailand and China in 2015, while the same two countries accounted for 80 percent of imports. China and Thailand also account for the majority of Myanmar's exports and imports. The exception is Vietnam, which exports a more diverse range of goods, including commodities, garments and electronics. Like Cambodia, most of Vietnam's production is destined for the advanced economies.
With the external environment appearing increasingly challenging, slower growth in CLMV in 2017 is likely. A further slowdown in China would weigh on the region's exports, especially Laos and Myanmar which are heavily reliant on China's commodity demand for investment goods. Cambodia and Vietnam are better-suited to benefit from China's rebalancing toward consumption as they export a larger share of consumer goods that will benefit. All of CLMV will benefit from a larger influx of Chinese tourists.
U.S. President-elect Donald Trump's threat of a trade war with China has scope to diminish risk appetite and stall private investment. But China's response to the Trump Administration may be to deepen investment links in the region. Further FDI inflows could help these countries diversify their export bases and integrate them into the global supply chain, following Vietnam's example.
The increasingly challenging external environment may have a silver lining for CLMV if the commitment to reforms is strengthened as a result. The impetus behind Asean's building of an economic community was to reduce the vulnerability of its members to external shocks. There has never been more of an incentive to reduce this sensitivity.
Big PictureAsean's frontier economies are being transformed through trade with China: page 3
FactsheetsCambodia: page 4Laos: page 5
MyanmarFactsheet: page 6
The country's central bank braces for a deeper slide in the currency: page 7
Q&A: page 8
VietnamFactsheet: page 10
Hanoi is pushing ahead with trade agreements: page 11
Former refugees return to found startups: page 12
BI InsightsVietnamese auto sales rise as Laos and Myanmar increase cement production capacities: page 13
Q&AThomas Hugger, chief executive officer, Asia Frontier Capital: page 14
Inside
Bloomberg Briefs: Asean's CLMV Frontier
Bloomberg Brief Managing Editor
Paul Smith
Economics Asia Editors
Nathaniel E. Baker
Colin Simpson
Graphic Design
Pekka Aalto
Bloomberg News Managing Editor
Linus Chua
Hanoi Bureau Chief
John Boudreau
SE Asia Economy Team Lead
Nasreen Seria
BI Asean Economist
Tamara Henderson
Marketing & Partnership Director
Courtney Martens
+1-212-617-2447
Reprints & Permissions
Lori Husted
+1-717-505-9701 x2204
Advertising
Lucy Rosen
+1-212-617-6759
Interested in learning more about
the Bloomberg terminal? Request a
free demo .here
© 2016 Bloomberg LP.
All rights reserved. This newsletter
and its contents may not be
forwarded or redistributed without
the prior consent of Bloomberg.
Please contact our reprints group
listed left for more information.
Big Picture
3Bloomberg Briefs
Special Edition 4 Dec. 8, 2016Asean’s Frontier Economies4
Special Edition 5 Dec. 8, 2016 Special Edition 2 Dec. 8, 2016
IntroductionBy Tamara Henderson, Bloomberg Intelligence EconomistAsean's frontier economies Cambodia, Laos, Myanmar and Vietnam are among the world's fastest growing. These are the region's low income economies, each at a different stage of transformation but all following an export-led growth strategy. This makes them vulnerable in the short-term to the particularly challenging external environment.
Low labor costs have attracted foreign direct investment, which spurred the increase in export shares for CLMV countries. This is in contrast with a decline in exports as a share of GDP for China and most of Asean over the last decade. Exports amount to nearly 90 percent of Vietnam's economy compared with one-third in 1995 and about two-thirds a decade ago. Exports are almost 70 percent of Cambodia's GDP, more than twice the share in 1995, and 35 percent of Laos's economy compared with 22 percent for China.
Open economies are more sensitive to external shocks. Asean's frontier economies are even more vulnerable because CLMV exports and imports tend to be concentrated in a small number of products and markets. The bulk of Cambodia's exports are garments, with the former French colony relying on China, Thailand and Vietnam for more than 60 percent of the inputs for garment production, according to the IMF.
Laos and Myanmar primarily export commodities. Nearly 65 percent of Laos' exports were shipped to Thailand and China in 2015, while the same two countries accounted for 80 percent of imports. China and Thailand also account for the majority of Myanmar's exports and imports. The exception is Vietnam, which exports a more diverse range of goods, including commodities, garments and electronics. Like Cambodia, most of Vietnam's production is destined for the advanced economies.
With the external environment appearing increasingly challenging, slower growth in CLMV in 2017 is likely. A further slowdown in China would weigh on the region's exports, especially Laos and Myanmar which are heavily reliant on China's commodity demand for investment goods. Cambodia and Vietnam are better-suited to benefit from China's rebalancing toward consumption as they export a larger share of consumer goods that will benefit. All of CLMV will benefit from a larger influx of Chinese tourists.
U.S. President-elect Donald Trump's threat of a trade war with China has scope to diminish risk appetite and stall private investment. But China's response to the Trump Administration may be to deepen investment links in the region. Further FDI inflows could help these countries diversify their export bases and integrate them into the global supply chain, following Vietnam's example.
The increasingly challenging external environment may have a silver lining for CLMV if the commitment to reforms is strengthened as a result. The impetus behind Asean's building of an economic community was to reduce the vulnerability of its members to external shocks. There has never been more of an incentive to reduce this sensitivity.
Big PictureAsean's frontier economies are being transformed through trade with China: page 3
FactsheetsCambodia: page 4Laos: page 5
MyanmarFactsheet: page 6
The country's central bank braces for a deeper slide in the currency: page 7
Q&A: page 8
VietnamFactsheet: page 10
Hanoi is pushing ahead with trade agreements: page 11
Former refugees return to found startups: page 12
BI InsightsVietnamese auto sales rise as Laos and Myanmar increase cement production capacities: page 13
Q&AThomas Hugger, chief executive officer, Asia Frontier Capital: page 14
Inside
Bloomberg Briefs: Asean's CLMV Frontier
Bloomberg Brief Managing Editor
Paul Smith
Economics Asia Editors
Nathaniel E. Baker
Colin Simpson
Graphic Design
Pekka Aalto
Bloomberg News Managing Editor
Linus Chua
Hanoi Bureau Chief
John Boudreau
SE Asia Economy Team Lead
Nasreen Seria
BI Asean Economist
Tamara Henderson
Marketing & Partnership Director
Courtney Martens
+1-212-617-2447
Reprints & Permissions
Lori Husted
+1-717-505-9701 x2204
Advertising
Lucy Rosen
+1-212-617-6759
Interested in learning more about
the Bloomberg terminal? Request a
free demo .here
© 2016 Bloomberg LP.
All rights reserved. This newsletter
and its contents may not be
forwarded or redistributed without
the prior consent of Bloomberg.
Please contact our reprints group
listed left for more information.
Big Picture
5Bloomberg Briefs
Special Edition 6 Dec. 8, 2016
Myanmar Economy
Asean’s Frontier Economies6
Special Edition 7 Dec. 8, 2016
Myanmar Economy
Asia’s New Tiger Economy Fears Currency Slide as Fed Hike LoomsBy Kyaw Thu, Bloomberg NewsMyanmar's central bank is braced for a deeper slide in the nation's currency and has little scope to tackle the decline after the kyat fell the most in Asia, according to one of the monetary authority's top officials.
The kyat has weakened about 10 percent against the dollar in the past six months, data compiled by Bloomberg show. The drop could deepen if the U.S. Federal Reserve increases interest rates this month as expected, said U Win Thaw, the director general of the foreign-exchange management department in the Central Bank of Myanmar.
"There's no way for the central bank to intervene in the market," he said in an interview by phone from his office in Yangon. "The depreciating kyat impacts on the economic stability of the country. Compared with other currencies, our drop is very rough at the moment."
The currency weakness has sparked a debate in Myanmar about whether officials should seek ways to stem the drop or let market forces find an equilibrium in an economy set for the world's second-fastest expansion in 2016. Depreciation stokes inflation by raising thecost of imports such as oil, while boosting the outlook for exports ranging from natural gas to minerals. Currency swings can also make it harder for businesses to plan investment.
A period of global dollar strength and Myanmar's trade deficit are among the reasons for the kyat's swoon, U Win Thaw said in the interview on Nov. 30.
"If there are restrictions on some import items, the trade balance will be even," he said, adding officials should scrutinize the purchase of luxury items such as foreign cars. "If the demand is reduced, there will
be some stability."A lack of cooperation between
ministries in the $65 billion economy makes it harder to frame a policy to respond to the kyat's weakness, U Win Thaw said.
The Southeast Asian nation's central bank has about $5 billion of foreign reserves, the International Monetary Fund estimated in September last year.
Myanmar moved to a managed float in 2012 to simplify the nation's currency market and encourage investment. The slide in the kyat since early June is among the worst in emerging markets.
In contrast, the currency was Asia's top performer during the first half on optimism about the transition to democracy under de facto leader Aung San Suu Kyi after a prolonged period of military rule.
Suu Kyi's National League for Democracy party in November last year won the country's first open elections since 1990. The government is trying to liberalize the economy and pursuing reforms such as deepening the bond market.
The U.S. eased sanctions on Myanmar after the elections in 2015, opening up untapped opportunities for foreign companies in a nation of 54 million people. Challenges include shifting regulations and an underdeveloped financial system.
The finance ministry and central bank set up a committee in October to scrutinize exchange-rate volatility, the Myanmar Times reported.
That was probably because of the pressure officials are under from some quarters of the business community, said Sean Turnell, an associate professor in the economics department at Macquarie University in Sydney and a special adviser to Myanmar's government.
"A floating currency is exactly what Myanmar needs," he said, adding an inflation rate of about 9 percent is another factor weighing on the kyat.
"There'll be an impact on the Myanmar currency if the U.S. increases interest rates in December," U Win Thaw said. "The kyat will depreciate again if they do."
— With assistance from Sunil Jagtiani.
Q&A
Special Edition 2 Dec. 8, 2016
IntroductionBy Tamara Henderson, Bloomberg Intelligence EconomistAsean's frontier economies Cambodia, Laos, Myanmar and Vietnam are among the world's fastest growing. These are the region's low income economies, each at a different stage of transformation but all following an export-led growth strategy. This makes them vulnerable in the short-term to the particularly challenging external environment.
Low labor costs have attracted foreign direct investment, which spurred the increase in export shares for CLMV countries. This is in contrast with a decline in exports as a share of GDP for China and most of Asean over the last decade. Exports amount to nearly 90 percent of Vietnam's economy compared with one-third in 1995 and about two-thirds a decade ago. Exports are almost 70 percent of Cambodia's GDP, more than twice the share in 1995, and 35 percent of Laos's economy compared with 22 percent for China.
Open economies are more sensitive to external shocks. Asean's frontier economies are even more vulnerable because CLMV exports and imports tend to be concentrated in a small number of products and markets. The bulk of Cambodia's exports are garments, with the former French colony relying on China, Thailand and Vietnam for more than 60 percent of the inputs for garment production, according to the IMF.
Laos and Myanmar primarily export commodities. Nearly 65 percent of Laos' exports were shipped to Thailand and China in 2015, while the same two countries accounted for 80 percent of imports. China and Thailand also account for the majority of Myanmar's exports and imports. The exception is Vietnam, which exports a more diverse range of goods, including commodities, garments and electronics. Like Cambodia, most of Vietnam's production is destined for the advanced economies.
With the external environment appearing increasingly challenging, slower growth in CLMV in 2017 is likely. A further slowdown in China would weigh on the region's exports, especially Laos and Myanmar which are heavily reliant on China's commodity demand for investment goods. Cambodia and Vietnam are better-suited to benefit from China's rebalancing toward consumption as they export a larger share of consumer goods that will benefit. All of CLMV will benefit from a larger influx of Chinese tourists.
U.S. President-elect Donald Trump's threat of a trade war with China has scope to diminish risk appetite and stall private investment. But China's response to the Trump Administration may be to deepen investment links in the region. Further FDI inflows could help these countries diversify their export bases and integrate them into the global supply chain, following Vietnam's example.
The increasingly challenging external environment may have a silver lining for CLMV if the commitment to reforms is strengthened as a result. The impetus behind Asean's building of an economic community was to reduce the vulnerability of its members to external shocks. There has never been more of an incentive to reduce this sensitivity.
Big PictureAsean's frontier economies are being transformed through trade with China: page 3
FactsheetsCambodia: page 4Laos: page 5
MyanmarFactsheet: page 6
The country's central bank braces for a deeper slide in the currency: page 7
Q&A: page 8
VietnamFactsheet: page 10
Hanoi is pushing ahead with trade agreements: page 11
Former refugees return to found startups: page 12
BI InsightsVietnamese auto sales rise as Laos and Myanmar increase cement production capacities: page 13
Q&AThomas Hugger, chief executive officer, Asia Frontier Capital: page 14
Inside
Bloomberg Briefs: Asean's CLMV Frontier
Bloomberg Brief Managing Editor
Paul Smith
Economics Asia Editors
Nathaniel E. Baker
Colin Simpson
Graphic Design
Pekka Aalto
Bloomberg News Managing Editor
Linus Chua
Hanoi Bureau Chief
John Boudreau
SE Asia Economy Team Lead
Nasreen Seria
BI Asean Economist
Tamara Henderson
Marketing & Partnership Director
Courtney Martens
+1-212-617-2447
Reprints & Permissions
Lori Husted
+1-717-505-9701 x2204
Advertising
Lucy Rosen
+1-212-617-6759
Interested in learning more about
the Bloomberg terminal? Request a
free demo .here
© 2016 Bloomberg LP.
All rights reserved. This newsletter
and its contents may not be
forwarded or redistributed without
the prior consent of Bloomberg.
Please contact our reprints group
listed left for more information.
Big Picture
7Bloomberg Briefs
Special Edition 8 Dec. 8, 2016
Q&A
Few Options for Investors Seeking Access to Myanmar's Nascent Securities Markets
Foreign direct investment in Myanmar is increasing, but financial markets remain off-limits.
Yangon Stock Exchange now up and running for local investors.
The law firm advises corporations on investment, business and regulatory processes in Myanmar through its Yangon office.
Krishna Ramachandra and Rory Lang, Duane Morris & Selvam LLP
Q: What options are there right now for foreigners to invest in Myanmar?A: We are seeing increasing foreign direct investment in the following sectors: aviation, banking, construction services companies, fast- food franchising, power, food and beverage manufacturing, mining, oil and gas, real estate, hospitality, tourism and telecommunications. These sectors are generally “open” for foreign investors but require their business vehicle to be structured accordingly and for the client to be aware of the risks going in. That’s where we come in. Some private funds and institutional investors are funding this wave of investment but most of the direct investment into Myanmar is coming through special purpose vehicles primarily setup in Singapore and private investors based in China, Thailand, and India. Presently, only Myanmar citizens and Myanmar companies are permitted to own shares in Myanmar companies. A foreign investor can establish and register a limited company as 100-percent foreign‐owned, however there are limitations and restrictions to this general rule. For instance, certain business sectors, such as import/export activities are reserved forlocal Myanmar citizens. A foreign investor has a number of options for structuring a business entity in Myanmar based on the kind of business activity to be carried out. They generally require registration under the Myanmar Companies Act (MCA) through the Directorate of Investment and Company Administration (DICA) and in some cases with the Myanmar Investment Commission (MIC) under the Foreign Investment Law (FIL).
A foreign investor may want to consider obtaining an MIC Permit, which would allow a foreign investor to benefit from certain investment incentives available under the FIL. An MIC Permit is not
mandatory for operating a business in Myanmar, but companies with MIC Permits are entitled to various tax holidays, long term leasing rights and investment protection incentives provided for in the FIL. to operate in Myanmar.
Q: What about real estate investing?A: Foreigners and foreign companies are not permitted to own land or enter into a long term lease agreement.
Q: What do you know about Yangon's nascent stock exchange?A: We were fortunate enough to advise First Myanmar Investment Co. Ltd. on its inaugural listing on the Yangon Stock Exchange, which took place on March 25. This was historic and it was the first listing of its kind on the YSX. In FMI’s and our view the listing was a tremendous success. Critically, the capital market fund raising exercises are still restricted to domestic investors. This maintains the perceived artificial bubble that exists in terms of whether the disclosure and investment parameters would cut it with a more discerning international investor base.
Q: So foreigners can't own shares, then?A: Foreigners and foreign companies presently do not have access to the Yangon Stock Exchange. The YSX is only open to Myanmar citizens and companies. There are also several other barriers that may prevent capital market development in Myanmar being a success. Foreign investors should be aware that the YSX is still in infancy and presently there are several hurdles that must still be overcome. These inadequacies may likely slow the entrance of domestic and foreign institutional and corporate investors.
Q: Any idea on how Myanmar's bankruptcy law is structured now and how this might change?A: Presently, there are no designated specific bankruptcy courts per se in existence in Myanmar. Laws relating specifically to bankruptcy proceedings are also generally lacking and Myanmar law does not provide much guidance on the issue of bankruptcy directly. Instead insolvency proceedings against companies or individuals are a mechanism that is used. As a general rule, the secured assets of an insolvent borrower will be protected from the general creditors of the borrower and subject to the payment of certain preferential claims (such as debts to the government, employee, labor and pensionclaims), which may be enforced outside ofany insolvency proceedings. Generally, allcase law is in Myanmar language and not readily accessible. Precedence is also not necessarily followed by Myanmar courts. This year the Myanmar Union Parliament adopted the new 2016 Arbitration Act. This provides a domestic legal framework to fully implement and comply with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, which Myanmar signed and ratified in 2013. The 2016 Arbitration Act, which is perceived as a positive step toward encouraging foreign investment in Myanmar, replacedMyanmar’s Arbitration Act of 1944, which laid out a framework for domestic arbitration but not international arbitration. Despite the passage of the 2016 Arbitration Act, however, additional steps still need to occur for a smooth enforcement of international arbitration awards, such as Myanmar courts updating and/or introducing new rules andprocedures and training judges about the process of enforcing such awards.
Asean’s Frontier Economies8
Special Edition 9 Dec. 8, 2016
Special Edition 2 Dec. 8, 2016
IntroductionBy Tamara Henderson, Bloomberg Intelligence EconomistAsean's frontier economies Cambodia, Laos, Myanmar and Vietnam are among the world's fastest growing. These are the region's low income economies, each at a different stage of transformation but all following an export-led growth strategy. This makes them vulnerable in the short-term to the particularly challenging external environment.
Low labor costs have attracted foreign direct investment, which spurred the increase in export shares for CLMV countries. This is in contrast with a decline in exports as a share of GDP for China and most of Asean over the last decade. Exports amount to nearly 90 percent of Vietnam's economy compared with one-third in 1995 and about two-thirds a decade ago. Exports are almost 70 percent of Cambodia's GDP, more than twice the share in 1995, and 35 percent of Laos's economy compared with 22 percent for China.
Open economies are more sensitive to external shocks. Asean's frontier economies are even more vulnerable because CLMV exports and imports tend to be concentrated in a small number of products and markets. The bulk of Cambodia's exports are garments, with the former French colony relying on China, Thailand and Vietnam for more than 60 percent of the inputs for garment production, according to the IMF.
Laos and Myanmar primarily export commodities. Nearly 65 percent of Laos' exports were shipped to Thailand and China in 2015, while the same two countries accounted for 80 percent of imports. China and Thailand also account for the majority of Myanmar's exports and imports. The exception is Vietnam, which exports a more diverse range of goods, including commodities, garments and electronics. Like Cambodia, most of Vietnam's production is destined for the advanced economies.
With the external environment appearing increasingly challenging, slower growth in CLMV in 2017 is likely. A further slowdown in China would weigh on the region's exports, especially Laos and Myanmar which are heavily reliant on China's commodity demand for investment goods. Cambodia and Vietnam are better-suited to benefit from China's rebalancing toward consumption as they export a larger share of consumer goods that will benefit. All of CLMV will benefit from a larger influx of Chinese tourists.
U.S. President-elect Donald Trump's threat of a trade war with China has scope to diminish risk appetite and stall private investment. But China's response to the Trump Administration may be to deepen investment links in the region. Further FDI inflows could help these countries diversify their export bases and integrate them into the global supply chain, following Vietnam's example.
The increasingly challenging external environment may have a silver lining for CLMV if the commitment to reforms is strengthened as a result. The impetus behind Asean's building of an economic community was to reduce the vulnerability of its members to external shocks. There has never been more of an incentive to reduce this sensitivity.
Big PictureAsean's frontier economies are being transformed through trade with China: page 3
FactsheetsCambodia: page 4Laos: page 5
MyanmarFactsheet: page 6
The country's central bank braces for a deeper slide in the currency: page 7
Q&A: page 8
VietnamFactsheet: page 10
Hanoi is pushing ahead with trade agreements: page 11
Former refugees return to found startups: page 12
BI InsightsVietnamese auto sales rise as Laos and Myanmar increase cement production capacities: page 13
Q&AThomas Hugger, chief executive officer, Asia Frontier Capital: page 14
Inside
Bloomberg Briefs: Asean's CLMV Frontier
Bloomberg Brief Managing Editor
Paul Smith
Economics Asia Editors
Nathaniel E. Baker
Colin Simpson
Graphic Design
Pekka Aalto
Bloomberg News Managing Editor
Linus Chua
Hanoi Bureau Chief
John Boudreau
SE Asia Economy Team Lead
Nasreen Seria
BI Asean Economist
Tamara Henderson
Marketing & Partnership Director
Courtney Martens
+1-212-617-2447
Reprints & Permissions
Lori Husted
+1-717-505-9701 x2204
Advertising
Lucy Rosen
+1-212-617-6759
Interested in learning more about
the Bloomberg terminal? Request a
free demo .here
© 2016 Bloomberg LP.
All rights reserved. This newsletter
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Big Picture
9Bloomberg Briefs
Special Edition 10 Dec. 8, 2016
Vietnam Economy
Asean’s Frontier Economies10
Special Edition 11 Dec. 8, 2016
Vietnam Economy
The TPP Is Changing the Economy, No Matter What Trump DoesBy Nguyen Kieu Giang, Bloomberg NewsAs Donald Trump prepares to kill the Trans-Pacific Partnership, the 12-nation trade pact is helping to spur the biggest overhaul of Vietnam's economy in decades.
The Communist government in Hanoi plans to push ahead with more than 30 separate pieces of legislation to comply with the trade deal, including rules on labor, business, foreign trade, and small-and-medium enterprises. Since a new Constitution was adopted in 2013, Vietnam's lawmakers have passed more than 100 laws — a scale of change unseen since the nation introduced the market-oriented "doi moi" reforms in the 1980s.
"We will continue carrying out what we've planned to do," Nguyen Duc Kien, deputy head of the Vietnam National Assembly's economic committee, said in an interview in Hanoi last month. "It's the technologies and corporate governance that we need to improve. It's crucial."
Vietnam has long been seen as one of the biggest potential winners from the TPP, with increased market access for everything from clothing to electronics to footwear. The deal also stood to complement a growing strategic relationship between the U.S. and Vietnam, which opposes China's territorial claims in the South China Sea.
Yet all isn't lost: The TPP also helped serve as an impetus for long-needed structural changes. While Vietnam first announced plans to reform its state-owned enterprises in 2011, progress has been slow, with the stakes sold often too small and many companies pulling back on plans to list on exchanges.
"We wanted to have good preparation, with or without TPP," said Vu Thi Thuan, chairwoman of Traphaco JSC, Vietnam's second-largest listed pharmaceutical company. "We still have to make sure we are able to compete with foreign rivals because Vietnam is more and more integrating into the global economy."
Thuan said Traphaco has spent heavily to increase its competitiveness, including
'Good Preparation'
the construction of $22 million factory to prepare for the expected rise in foreign medicines entering Vietnam if TPP came into effect. Other companies in export industries such as textiles and garment, footwear, seafood, wood furniture and agricultural products have also made investments, according to Nghia Trong Pham, deputy director general of the Department of Laws at Vietnam's National Assembly Office.
"This preparation contributes to improve their competitiveness even if the TPP is not taking effect," Nghia said in an e-mail. "It is reasonable to conclude that the period of 2011-2016 is the biggest reforms in Vietnam since Doi Moi. TPP is one of the important actors for this process."
Nghia said TPP has also helped raise awareness among key stakeholders including state officials, employers, trade unions, workers and the general public on the implications of free trade. Vietnamese business leaders also appear keen to maintain the reform momentum generated by TPP.
Alan Pham, chief economist at Vietnam's largest fund manager VinaCapital Group, says TPP is a kind of roadmap for Vietnam as it integrates further into the global economy.
"Whether we have TPP or not, Vietnam
Reform Momentum
will still have to reform," Pham said. "The trade pact is really useful for the government and for Vietnamese business to know what are the steps they will need to take to really become part of the global economy."
Last month, the ruling Communist Party adopted a resolution on International Economic Integration that confirmed Vietnam's commitment to further opening up the economy. The Finance Ministry has recommended moves to support start-up companies, including cutting the corporate income-tax rate for small and medium-sized enterprises to as low as 15 percent from the current 20 percent.
China is now pushing a separate 16-nation agreement called the Regional Comprehensive Economic Partnership. That would include Vietnam along with the rest of the 10-member Association of Southeast Asian Nations, as well as Japan, South Korea, Australia, New Zealand and India.
Prime Minister Nguyen Xuan Phuc said in October that Vietnam would pursue greater international integration through 12 other free trade agreements it had already signed even if the TPP falls through.
— With assistance from Nguyen Dieu Tu Uyen.
China Pact
Vietnam Startups
Vietnam's Exports of Phones and Parts Have Soared
Special Edition 2 Dec. 8, 2016
IntroductionBy Tamara Henderson, Bloomberg Intelligence EconomistAsean's frontier economies Cambodia, Laos, Myanmar and Vietnam are among the world's fastest growing. These are the region's low income economies, each at a different stage of transformation but all following an export-led growth strategy. This makes them vulnerable in the short-term to the particularly challenging external environment.
Low labor costs have attracted foreign direct investment, which spurred the increase in export shares for CLMV countries. This is in contrast with a decline in exports as a share of GDP for China and most of Asean over the last decade. Exports amount to nearly 90 percent of Vietnam's economy compared with one-third in 1995 and about two-thirds a decade ago. Exports are almost 70 percent of Cambodia's GDP, more than twice the share in 1995, and 35 percent of Laos's economy compared with 22 percent for China.
Open economies are more sensitive to external shocks. Asean's frontier economies are even more vulnerable because CLMV exports and imports tend to be concentrated in a small number of products and markets. The bulk of Cambodia's exports are garments, with the former French colony relying on China, Thailand and Vietnam for more than 60 percent of the inputs for garment production, according to the IMF.
Laos and Myanmar primarily export commodities. Nearly 65 percent of Laos' exports were shipped to Thailand and China in 2015, while the same two countries accounted for 80 percent of imports. China and Thailand also account for the majority of Myanmar's exports and imports. The exception is Vietnam, which exports a more diverse range of goods, including commodities, garments and electronics. Like Cambodia, most of Vietnam's production is destined for the advanced economies.
With the external environment appearing increasingly challenging, slower growth in CLMV in 2017 is likely. A further slowdown in China would weigh on the region's exports, especially Laos and Myanmar which are heavily reliant on China's commodity demand for investment goods. Cambodia and Vietnam are better-suited to benefit from China's rebalancing toward consumption as they export a larger share of consumer goods that will benefit. All of CLMV will benefit from a larger influx of Chinese tourists.
U.S. President-elect Donald Trump's threat of a trade war with China has scope to diminish risk appetite and stall private investment. But China's response to the Trump Administration may be to deepen investment links in the region. Further FDI inflows could help these countries diversify their export bases and integrate them into the global supply chain, following Vietnam's example.
The increasingly challenging external environment may have a silver lining for CLMV if the commitment to reforms is strengthened as a result. The impetus behind Asean's building of an economic community was to reduce the vulnerability of its members to external shocks. There has never been more of an incentive to reduce this sensitivity.
Big PictureAsean's frontier economies are being transformed through trade with China: page 3
FactsheetsCambodia: page 4Laos: page 5
MyanmarFactsheet: page 6
The country's central bank braces for a deeper slide in the currency: page 7
Q&A: page 8
VietnamFactsheet: page 10
Hanoi is pushing ahead with trade agreements: page 11
Former refugees return to found startups: page 12
BI InsightsVietnamese auto sales rise as Laos and Myanmar increase cement production capacities: page 13
Q&AThomas Hugger, chief executive officer, Asia Frontier Capital: page 14
Inside
Bloomberg Briefs: Asean's CLMV Frontier
Bloomberg Brief Managing Editor
Paul Smith
Economics Asia Editors
Nathaniel E. Baker
Colin Simpson
Graphic Design
Pekka Aalto
Bloomberg News Managing Editor
Linus Chua
Hanoi Bureau Chief
John Boudreau
SE Asia Economy Team Lead
Nasreen Seria
BI Asean Economist
Tamara Henderson
Marketing & Partnership Director
Courtney Martens
+1-212-617-2447
Reprints & Permissions
Lori Husted
+1-717-505-9701 x2204
Advertising
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Please contact our reprints group
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Big Picture
11Bloomberg Briefs
Special Edition 12 Dec. 8, 2016
Vietnam Startups
Refugees Who Fled Communists Lured Back By Startup DreamsBy John Boudreau, Bloomberg NewsDuring Dang Van Tran's numerous attempts to flee Vietnam at the age of seven he was shot at twice, nearly drowned at sea and stranded on an island.
Now 40 years later, he is back in the communist country doing something unthinkable when he finally escaped with 150 others on a fishing trawler: running a startup in Saigon called Butterfly Hub, which helps businesses make data-based decisions in the beauty and fashion world.
Tran is part of a wave of overseas Vietnamese defying personal traumas and family objections to invest in a country they once risked all to escape. That includes his father, who lost everything to the communists in 1975 before seeking a new life for his family in the U.S. On his return, Tran found a country more enamored with iPhones than Karl Marx and with a burgeoning tech startup scene.
"It blew my mind," he said. "So I decided to stay."The aftermath of the communist victory had a devastating
impact on many of its citizens, resulting in a massive displacement of humanity. More than a million were put into re-education camps, where many died, according to the United Nations High Commissioner for Refugees. By 2010, more than 1.5 million Vietnamese had resettled in the U.S. alone, while others fled to Australia, Canada and Europe.
"For many, including most of my family, those memories are painful and can be recalled as if they happened yesterday," said Binh Tran, co-founder of San Francisco-based Klout Inc. who returned part-time to Vietnam as a partner at Silicon Valley's 500 Startups, which started a $10 million fund this year.
The nation they have returned to presents a much different face to the one they fled. The government is actively trying to lure investment in high-technology sectors, education has improved and so have living standards.
Overseas Vietnamese, known as Viet Kieu, are now a driving force in the economy, sending $13.2 billion in remittances to the country last year, a 900 percent increase since 2000, according to the World Bank.
"Time heals old wounds," said Than Trong Phuc, who fled on a helicopter from the U.S. embassy and returned as Vietnam country director for Intel Corp., playing a role in the decision of the world's largest semiconductor company to invest $1 billion in Vietnam.
Taiwan, China, India and other countries have for decades benefited from former citizens returning from tech centers such as Silicon Valley. Now Vietnam is trying to catch up and is seeking even more investment.
"Frankly, investments from Viet Kieu do not meet the country's needs," said Le Hoai Quoc, head of the management board of Saigon Hi-Tech Park. A lack of trust in the government has deterred some from investing, he added.
The government offers Viet Kieu incentives, such as visas for up to five years and duty-free imports of used cars. A $40 million tech park dubbed Saigon Silicon City is being built in Ho Chi Minh City to attract Viet Kieu with tax breaks and subsidized rent.
The county's youthful demographics and growing middle class are more of a lure. Vietnam's annual economic growth
accelerated to 6.4 percent during the third quarter, from 5.8 percent in the previous three months, the General Statistics Office said Sept. 29, behind only the Philippines in Southeast Asia.
More than half of the country's population are online and the number of mobile phones exceeds the number of citizens, Binh Tran said. Flappy Bird, the 2014 gaming phenomenon developed in Vietnam, inspired a generation of new tech entrepreneurs.
"We are looking at Vietnam without the painful scars of war and simply see an incredible opportunity for growth and prosperity," said Binh Tran, the 500 Startups partner, who left when he was one-and-a-half years old. "The education system has a strong foundation in math and science, building blocks for computer science. And Vietnam is in love with startups — it seems like every other day there is a hackathon or a pitch competition."
Fossil Group Inc., which sells30 million watches annually, last year acquired Misfit Wearables Corp. for $260 million, gaining the wearable device maker co-founded by John Sculley and Vietnamese-American Sonny Vu. Vu returned to Vietnam after
Continued on next page…
Binh Tran, co-founder of Klout.
Than Trong Phuc
Asean’s Frontier Economies12
Special Edition 13 Dec. 8, 2016
Continued from previous page
Vietnam Startups…
leaving as a child to oversee the company's 160-member Ho Chi Minh City software team.
"These people are skilled at world-class levels," Vu said.Esther Nguyen, who grew up in Silicon Valley, returned to
Vietnam eight years ago to found digital entertainment website Pops Worldwide, which signed a partnership with Turner Broadcasting Systems Inc. this year.
Still, Vietnam remains far behind other regions that have
attracted successful tech entrepreneurs because of a dearth of early-stage startup funding. The talent pool, while eager, hard-working and low-cost, lack some of the skills found in Silicon Valley, said Ho Chi Minh City tech entrepreneur Dang Van Tran.
And the legacy of war is an obstacle for many Viet Kieu, said Don Phan, 33, a Yale University graduate who founded online baby products store Taembe.com in Ho Chi Minh City in 2013.
"Many of my peers have said they could never do business in Vietnam because of what their parents went through," he said.
After the war, Dang Van Tran's father, a former military officer, was imprisoned as "a traitor" and his mother was sent to a re-education camp for being "a capitalist." Putting the past behind him, he sleeps on a cot in an office outfitted with artificial grass carpet and chairs designed like hands.
"I'm a technology guy," the entrepreneur said. "I want to help create a startup culture. I want to disrupt Vietnam."
— With assistance from Luu Van Dat and Nguyen Dieu Tu Uyen.
BI Insights
Sonny Vu
Dang Van Tran
Special Edition 2 Dec. 8, 2016
IntroductionBy Tamara Henderson, Bloomberg Intelligence EconomistAsean's frontier economies Cambodia, Laos, Myanmar and Vietnam are among the world's fastest growing. These are the region's low income economies, each at a different stage of transformation but all following an export-led growth strategy. This makes them vulnerable in the short-term to the particularly challenging external environment.
Low labor costs have attracted foreign direct investment, which spurred the increase in export shares for CLMV countries. This is in contrast with a decline in exports as a share of GDP for China and most of Asean over the last decade. Exports amount to nearly 90 percent of Vietnam's economy compared with one-third in 1995 and about two-thirds a decade ago. Exports are almost 70 percent of Cambodia's GDP, more than twice the share in 1995, and 35 percent of Laos's economy compared with 22 percent for China.
Open economies are more sensitive to external shocks. Asean's frontier economies are even more vulnerable because CLMV exports and imports tend to be concentrated in a small number of products and markets. The bulk of Cambodia's exports are garments, with the former French colony relying on China, Thailand and Vietnam for more than 60 percent of the inputs for garment production, according to the IMF.
Laos and Myanmar primarily export commodities. Nearly 65 percent of Laos' exports were shipped to Thailand and China in 2015, while the same two countries accounted for 80 percent of imports. China and Thailand also account for the majority of Myanmar's exports and imports. The exception is Vietnam, which exports a more diverse range of goods, including commodities, garments and electronics. Like Cambodia, most of Vietnam's production is destined for the advanced economies.
With the external environment appearing increasingly challenging, slower growth in CLMV in 2017 is likely. A further slowdown in China would weigh on the region's exports, especially Laos and Myanmar which are heavily reliant on China's commodity demand for investment goods. Cambodia and Vietnam are better-suited to benefit from China's rebalancing toward consumption as they export a larger share of consumer goods that will benefit. All of CLMV will benefit from a larger influx of Chinese tourists.
U.S. President-elect Donald Trump's threat of a trade war with China has scope to diminish risk appetite and stall private investment. But China's response to the Trump Administration may be to deepen investment links in the region. Further FDI inflows could help these countries diversify their export bases and integrate them into the global supply chain, following Vietnam's example.
The increasingly challenging external environment may have a silver lining for CLMV if the commitment to reforms is strengthened as a result. The impetus behind Asean's building of an economic community was to reduce the vulnerability of its members to external shocks. There has never been more of an incentive to reduce this sensitivity.
Big PictureAsean's frontier economies are being transformed through trade with China: page 3
FactsheetsCambodia: page 4Laos: page 5
MyanmarFactsheet: page 6
The country's central bank braces for a deeper slide in the currency: page 7
Q&A: page 8
VietnamFactsheet: page 10
Hanoi is pushing ahead with trade agreements: page 11
Former refugees return to found startups: page 12
BI InsightsVietnamese auto sales rise as Laos and Myanmar increase cement production capacities: page 13
Q&AThomas Hugger, chief executive officer, Asia Frontier Capital: page 14
Inside
Bloomberg Briefs: Asean's CLMV Frontier
Bloomberg Brief Managing Editor
Paul Smith
Economics Asia Editors
Nathaniel E. Baker
Colin Simpson
Graphic Design
Pekka Aalto
Bloomberg News Managing Editor
Linus Chua
Hanoi Bureau Chief
John Boudreau
SE Asia Economy Team Lead
Nasreen Seria
BI Asean Economist
Tamara Henderson
Marketing & Partnership Director
Courtney Martens
+1-212-617-2447
Reprints & Permissions
Lori Husted
+1-717-505-9701 x2204
Advertising
Lucy Rosen
+1-212-617-6759
Interested in learning more about
the Bloomberg terminal? Request a
free demo .here
© 2016 Bloomberg LP.
All rights reserved. This newsletter
and its contents may not be
forwarded or redistributed without
the prior consent of Bloomberg.
Please contact our reprints group
listed left for more information.
Big Picture
13Bloomberg Briefs
Special Edition 14 Dec. 8, 2016
BI Insights
Vietnam is buying more cars on higher confidence in economic growth. The country's sales of passenger vehicles jumped 44 percent year-over-year in October, leading the 26 percent increase in overall auto sales.
Commercial vehicle sales gained just 6.5 percent. Passenger vehicle sales across all segments surged, including sedans and SUVs. Commercial light truck and bus sales growth slowed in October after rising 17 percent in the prior three months. Total auto sales are up 30 percent in the first 10 months of this year.
— Steve Man and Ji Shi
Vietnam Auto Sales Charge Ahead
Laos may face cement oversupply next year, with capacity jumping to more than 10 million tons in 2017 from 4 million in 2016. That considerably outpaces the industry's expected 10 percent demand growth next year, to 3.3 million tons.
Oversupply could reduce cement prices from $70-80 a ton, still higher than China's $46 average. China is Laos's largest investor, and its presence there may boost Chinese cement makers' forays abroad. The Laotian government has approved capacity for an additional 15 million tons a year by 2025.
— Michelle Leung and Yi Zhu
Laos Faces Possible Cement Glut
Myanmar's plans to rapidly add cement capacity may turn it into a net exporting country for the material by 2018.
Foreign cement producers including Anhui Conch, Tangshan Jidong, Siam Cement and a local supplier plan to add 16 million tons of capacity, for a total of about 19 million tons by the end of 2021. Myanmar's current capacity is 3.1 million tons. The expansion may push down local prices, which are about 40 percent higher than the average in China.
— Michelle Leung and Yi Zhu
Myanmar May Become Net Cement Exporter By 2018
Q&A
Asean’s Frontier Economies14
Special Edition 15 Dec. 8, 2016
Q&A
Accessing CLMV Economies Through Stock Listings in Hong Kong, Australia
Manages $18 million Asia Frontier Fund, which invests in Cambodia, Laos, Myanmar and Vietnam and other markets
Fund claims cumulative returns of 60.23 percent since its inception in March 2012, compared with 9.58 percent for the MSCI Frontier Markets Asia Index over the same period
Interviewed by Colin Simpson, Bloomberg Briefs editor, on Nov 23. Comments have been edited and condensed for clarity.
Thomas Hugger, chief executive officer, Asia Frontier Capital
Q: What's the appeal of the CLMV markets to investors?A: All these markets have very young populations, and they have fast-growing economies — the GDP growth is much higher compared with other Asian emerging markets, with the exception of China and India. The GDP levels per capita are very low so they are still in the sweet spot where they're growing. A lot of people will be able to move from very, very poor to very low basic income, and those already in the low-income bracket will be able to move to middle income. So there'll be a big growing population that will be able to consume more. That's where we're really focused, we like to invest in companies that can benefit from the consumer.
Q: How do you see the potential of these markets?
If you invest today in Vietnam it's like A:investing in Thailand or Malaysia 50 years ago, or China 25 years ago, it's very early. The economies will be growing, so naturally the stocks listed there should grow, along with the stock markets. So instead of having five listed companies in Laos, hopefully there will be 30 or 40 in five to 10 years.
Q: There's only a handful of companies listed in the stock exchanges in Cambodia, Laos and Myanmar. How do you get round the lack of investment choice?A: We also invest in companies that are listed outside the country but have at least 50 percent of their exposure in one of these economies. For example, the first company we invested in with this fund was NagaCorp Ltd., a casino operator from Phnom Penh that is listed in Hong Kong. Right now we are invested in Emerald Resources NL, a gold explorer active in Cambodia that is listed in
Australia. With Myanmar, we have invested in two private equity funds, one listed in London and the other listed in Singapore, and we've invested in another two companies listed in Singapore that have business exposure in Myanmar.
Q: What's it like to operate in the smaller markets?A: Foreigners are allowed to invest in Cambodia and Laos. In Laos there are some restrictions on the currency, but it's pretty OK, if you're investing in the stock market you can move out the currency without a problem. It's a different story if you invest in, let's say, private equity, then you have bigger issues regarding investment, you need to have approval from the government. Cambodia is very open, you can more or less invest in everything. The only big exception is land, but they are relaxing that a little bit now. Myanmar has three stocks, but foreigners are not allowed to invest in the stock market right now.
Q: Do you think Myanmar will open up to overseas investors?
There's no doubt about it, but the A:question is, is it in one year, three years, five years? Like a lot of small countries, they're worried about foreigners coming in and just buying up the whole country.
Q: What sort of investor buys into yourfund?
We have about 115 investors. About A:30 percent are from the U.S., the rest mainly from Switzerland and the U.K. Some are expatriates living here in Asia — in Hong Kong, Singapore, Bangkok and Kuala Lumpur, and then we have some family offices and four small fund-of-funds. We hope that now we're approaching a five-year track record we'll get some bigger institutional investors interested in the fund.
Q: What are the biggest risks in frontier markets?A: Regulatory risk and changes of policy. There can be a lack of regulation, or countries that are completely over-regulated — Vietnam is quite regulated.
Q: Vietnam, with more than 1,000 stocks, is way ahead of the other three — can they ever catch up?A: Vietnam is maybe 15 years ahead of Cambodia. Cambodia is catching up fast, then behind it is Laos and Myanmar is obviously just opening up. It would be a miracle if one of these countries could move ahead of Vietnam, but you never know — the Philippines was ahead of South Korea 50 years ago, and now it's a different story.
At A Glance
CAREER: Former managing partner, CFO and COO at Leopard Capital; previously a managing director and head of portfolio management at LGT Bank, Hong Kong.AGE: 54. : Zurich. Curry — "Thai or Malaysian or HOMETOWN FAVORITE FOOD:whatever." Craft beer.DRINK:
Luang Prabang, Laos — "It's completely laid back, if you went FAVORITE PLACE:back to the Asia of 70 years ago it's still there, it's preserved."
Back to the Future. Queen's .FAVORITE FILM: SONG: "We Are The Champions"
Special Edition 2 Dec. 8, 2016
IntroductionBy Tamara Henderson, Bloomberg Intelligence EconomistAsean's frontier economies Cambodia, Laos, Myanmar and Vietnam are among the world's fastest growing. These are the region's low income economies, each at a different stage of transformation but all following an export-led growth strategy. This makes them vulnerable in the short-term to the particularly challenging external environment.
Low labor costs have attracted foreign direct investment, which spurred the increase in export shares for CLMV countries. This is in contrast with a decline in exports as a share of GDP for China and most of Asean over the last decade. Exports amount to nearly 90 percent of Vietnam's economy compared with one-third in 1995 and about two-thirds a decade ago. Exports are almost 70 percent of Cambodia's GDP, more than twice the share in 1995, and 35 percent of Laos's economy compared with 22 percent for China.
Open economies are more sensitive to external shocks. Asean's frontier economies are even more vulnerable because CLMV exports and imports tend to be concentrated in a small number of products and markets. The bulk of Cambodia's exports are garments, with the former French colony relying on China, Thailand and Vietnam for more than 60 percent of the inputs for garment production, according to the IMF.
Laos and Myanmar primarily export commodities. Nearly 65 percent of Laos' exports were shipped to Thailand and China in 2015, while the same two countries accounted for 80 percent of imports. China and Thailand also account for the majority of Myanmar's exports and imports. The exception is Vietnam, which exports a more diverse range of goods, including commodities, garments and electronics. Like Cambodia, most of Vietnam's production is destined for the advanced economies.
With the external environment appearing increasingly challenging, slower growth in CLMV in 2017 is likely. A further slowdown in China would weigh on the region's exports, especially Laos and Myanmar which are heavily reliant on China's commodity demand for investment goods. Cambodia and Vietnam are better-suited to benefit from China's rebalancing toward consumption as they export a larger share of consumer goods that will benefit. All of CLMV will benefit from a larger influx of Chinese tourists.
U.S. President-elect Donald Trump's threat of a trade war with China has scope to diminish risk appetite and stall private investment. But China's response to the Trump Administration may be to deepen investment links in the region. Further FDI inflows could help these countries diversify their export bases and integrate them into the global supply chain, following Vietnam's example.
The increasingly challenging external environment may have a silver lining for CLMV if the commitment to reforms is strengthened as a result. The impetus behind Asean's building of an economic community was to reduce the vulnerability of its members to external shocks. There has never been more of an incentive to reduce this sensitivity.
Big PictureAsean's frontier economies are being transformed through trade with China: page 3
FactsheetsCambodia: page 4Laos: page 5
MyanmarFactsheet: page 6
The country's central bank braces for a deeper slide in the currency: page 7
Q&A: page 8
VietnamFactsheet: page 10
Hanoi is pushing ahead with trade agreements: page 11
Former refugees return to found startups: page 12
BI InsightsVietnamese auto sales rise as Laos and Myanmar increase cement production capacities: page 13
Q&AThomas Hugger, chief executive officer, Asia Frontier Capital: page 14
Inside
Bloomberg Briefs: Asean's CLMV Frontier
Bloomberg Brief Managing Editor
Paul Smith
Economics Asia Editors
Nathaniel E. Baker
Colin Simpson
Graphic Design
Pekka Aalto
Bloomberg News Managing Editor
Linus Chua
Hanoi Bureau Chief
John Boudreau
SE Asia Economy Team Lead
Nasreen Seria
BI Asean Economist
Tamara Henderson
Marketing & Partnership Director
Courtney Martens
+1-212-617-2447
Reprints & Permissions
Lori Husted
+1-717-505-9701 x2204
Advertising
Lucy Rosen
+1-212-617-6759
Interested in learning more about
the Bloomberg terminal? Request a
free demo .here
© 2016 Bloomberg LP.
All rights reserved. This newsletter
and its contents may not be
forwarded or redistributed without
the prior consent of Bloomberg.
Please contact our reprints group
listed left for more information.
Big Picture
15Bloomberg Briefs
©2016 Bloomberg LPbloombergbriefs.com
