Peter's Perspective
22nd August 2016 by Peter Churchouse

Emerging Frontiers

There are developed markets.

There are emerging markets.

After that we have frontier markets…

And then there are emerging frontier markets.

Earlier this month I spent a few days revisiting and pounding the pavements of a true “emerging frontier market”.

Can you make money in an emerging frontier market? Yes… but it’s tough. I made around 800% on an equity investment in this particular market, but more on that later…

My first visit to this country was around six years ago. I joined a trade mission exploring the potential for business opportunities as the country was emerging from decades of closed military dictatorship.

At that point the basics of financial life as we know it simply didn’t exist. There was virtually no mobile phone system in the country. And it would set you back around US$3,000 for a mobile phone and SIM card.

(To put that in perspective, although we don’t even have the data, I’d estimate that annual GDP per capita was less than half that amount!)

Electricity supply was dire. To this day it remains woefully inadequate.

Owning a car was a pipe dream for ordinary folks. A rusty 20-year old Toyota banger would set you back about US$30,000. That’s assuming you could find someone who had one and was willing to sell it.

Billboards carrying names of any kind of foreign brand were unknown. Coca-cola, McDonald’s, Visa… they just didn’t exist.


The transformation has been extraordinary, the speed of which I don’t recall having ever seen in this region.

In terms of mobile phone penetration, just take a look at the chart below.

Chart of mobile phone penetration (phones per 100 people) in Myanmar from 2006-2015.

And these are predominantly smartphones. In the space of a couple years, millions of people have gone from nothing to having a world of information and connectivity in their hands.

Legions of drivers are using these same phones and google maps to navigate around the city. Wi-fi is available everywhere… often free in cafes, hotels and restaurants. Internet speed isn’t too bad either.

And there are cars everywhere now. Too many some would argue. Japanese car makers have had a field day here.

Evidence of foreign brands is all around. Korean and Japanese names are dominant, but Rolex, Mercedes, Land Rover, Illy coffee, Apple and the like are piling in. About a dozen foreign banks now have a small presence in the country.

On my first trip there was only one modern office building I could see, just nearing completion. Five years later there are many more, and they are full. Rentals in prime office buildings are now similar to those in well located grade B/C buildings here in Hong Kong.

High rise apartment blocks are now a common sight, with a good many more coming out of the ground.

While this is not a building boom of the levels we have seen in countless cities in China over the past 25 years or in Thailand say in the 1990’s, the amount and pace of change is impressive.

But at the same time, there are commendable efforts to preserve much of the historic urban architectural fabric of the city.

While this transformation is not at the breakneck pace we saw in China, it is nonetheless impressive to see the extent of change that has taken place in a mere five or six years. You get the sense that this is just the beginning.

The country I am talking about in Myanmar, and the city, Yangon.

It is emerging into the world after decades of being shut off from it by a hard core military regime that largely sealed its borders to outside capital, investment, goods and services. The military is stepping back (slowly!) from their total control and an elected civil regime is now taking its place for the first time in decades.

The country is rapidly opening for business.

And yes, it does actually have a stock market!

In fact, the size of the market in terms of listings has doubled in the past couple of months… to two, although even that number may triple by the end of the year (to 6).

Going back to the big question… how do you make money in markets like these?

I’ll be honest, it’s tough. More often than not, you need to rely on your gut, have a bit of an inside track and the ability to move quickly….

I took a position (since exited) in a company called Yoma Strategic Holdings Ltd (YOMA SP) in late 2011. We wrote about it in our publication that would later become The Churchouse Letter (“The Road to Mandalay: Myanmar Looks to be for real” – The entire issue is available to read).

Why did I buy an emerging frontier stock?

The macro and political side of things was important. Myanmar was just beginning to open up. Hilary Clinton was about to visit the country, the first U.S. Secretary of State to do so in 50 years. Aung San Suu Kyi had been released from house arrest a year earlier.

But the ‘local’ knowledge? Well, I had been acquainted with the Chairman, a Burmese man, since the mid 1980’s. In addition to that, a good friend of mine was appointed as CEO of the company. I’d known him a long time. He was an extraordinarily skilled investment banking and private equity expert with a pedigree background.

It also helped that the company’s main line of business is real estate; an excellent place to be when a country is starting to modernize and open up.

Much of the low-hanging investment fruit has since been picked in Myanmar, but it’s always good to keep an ear to the ground… and there’s no substitute for pounding the pavements yourself to see what the state of the economy is like.

It may take time, but Myanmar will no doubt offer us more profitable opportunities down the road…

At the end of the day, trades like this are small and speculative… there’s the potential for huge gains if you’re aware of the opportunity to get in early. But you also need to be prepared to endure some potentially stomach-churning rides.

I rarely invest in these kinds of opportunities, and right now there are better emerging market Asia investments to be had (see The Churchouse Letter recommendations in the members’ area).

Tama and myself are off to San Francisco and Oregon tomorrow for a week. I’m hugely looking forward to catching up with my friends from Newport Asia (large long-only Asia focused fund managers) along with plenty of other old hands… There’s plenty to talk about, especially on the political front.

But with the S&P500 now trading at its highest valuation since the dotcom bubble I’ll be spending plenty of time assessing equity market prospects as well.

Good investing,


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