Executive summary 2015 was a mixed year for the world’s capital markets and the story was no different across ASEAN. Spread across two client alerts, we take a brief look at the capital markets of each of the ASEAN members, how they fared in 2015 and the outlook for 2016. In this first alert we consider the markets of the wider Mekong region.

Laos The Laos Securities Exchange (LSX) was launched to much fanfare in January 2011 and celebrated its fifth anniversary in January 2016. Unfortunately, after the initial excitement around the launch and the subsequent listings of EDL Generation Public Company (EDL) and Banque Pour Le Commerce Exterieur Lao (BCEL), LSX struggled to gain traction and there were still only four companies listed at the end of 2014.

Generally, these teething issues should not have been a surprise, particularly when one considers that Laos has a modest GDP of around US$12 billion, with the majority of the population working in the agricultural sector. Moreover, despite significant recent progress in the reform of its legal and economic institutions, Laos still has a long way to go to create an investment platform of international standards. As such, many felt at the time, and in some cases still do, that the launch of LSX was premature and should have been delayed until the infrastructure was more developed.

However, notwithstanding these growing pains, 2015 may yet prove to be a watershed year for LSX for a couple of reasons.

Firstly, thanks to the efforts of Twin Pine Consulting (TPC), a Bangkok-based financial advisory company, the profile of Laos as a capital market destination has received a boost. TPC has been instrumental in a number of sovereign bond issues in Thailand by the Lao Government, culminating in June 2015 with Lao’s largest sovereign issue of circa US$350 million. This year, TPC took this initiative one step further helping LSX listed EDL to raise a corporate bond of around US$175 million. Secondly, in December 2015 LSX secured its fifth IPO when construction materials and home improvement supplier, Souvanny Home Center Public Company, joined the market.

Admittedly these are only small steps, but after something of a lull between 2012 and 2014, there are at least some signs of renewed life in the Lao capital markets, and 2016 could be another good year if momentum can be maintained.

Cambodia Like LSX, the Cambodia Securities Exchange (CSX) launched in early 2011 and has followed a similar trajectory, with a prolonged lull following the initial celebrations and the listing of Phnom Penh Water Supply Authority in March 2011.

Again, progress has largely been thwarted by a lack of listings with only two more companies joining the market since it opened. It took over three years for the second IPO to arrive with Taiwanese garment manufacturer, Grand Twins (International) Cambodia plc, joining in June 2014. Just recently, the December 2015 IPO of Phnom Penh Autonomous Port (PPAP) made it the third stock to join CSX.

The failure of CSX to grow more aggressively can be attributed to a number of factors, including a lack of technical infrastructure, a limited supply of suitably developed companies and an economy that is heavily reliant on agriculture. Furthermore, despite having a population which is more than double that of Laos, Cambodia’s US$16 million GDP is only 50 per cent larger than that of its smaller neighbour.

However, again like Laos, there are positive signs for CSX in 2016 with two further listings on the way. Another garment manufacturer, TY Fashion (Cambodia) plc, and Phnom Penh SZE plc, operator of the national capital’s special economic zone, both posted notice of their listing intentions in November 2015, although neither has come to market yet.

So, whether the recent listing of PPAP will prove to be the catalyst for a strong 2016 remains to be seen, but with the economy averaging growth of around 7 per cent in the last five years, supported by lower oil prices, strong garment exports and a buoyant construction sector, there are definitely reasons for optimism.

Myanmar Going into 2015, Myanmar did not have a national bourse. However, that all changed on 9 December with the launch of the Yangon Stock Exchange (YSX).

Although YSX has opened its doors, there are a number of challenges still to be overcome. Most obviously, the first listings have yet to be launched. Furthermore, for the time being at least, YSX will be a wholly domestic affair, accessible only to local issuers and local investors – although it is generally recognised that the market will need to open up to foreign investors – particularly given the significant levels of FDI that Myanmar hopes to attract in the future. However, these issues should not detract from the achievement of launching YSX, which has been heavily supported by Japan in the shape of Japan Exchange Group and Daiwa Securities Group.

It will be interesting to see how YSX fares in 2016, but with at least six companies thought to be lining up for IPOs, including Asia Green Development Bank and First Myanmar Investment Company, it promises to be another interesting year. Perhaps the key measure of how well YSX does will be whether it can translate the initial exuberance into a sizeable crop of listings with sufficient critical mass to avoid the problems that Laos and Cambodia experienced. With a significantly larger population of around 53 million and the headwind provided by the hugely popular election result in November 2015, the ingredients are certainly there.

Vietnam 2015 saw a continuation of the robust economic growth in Vietnam, which took off in 2014 following a prolonged post-GFC malaise which had seen both inflation and interest rates rise to 20 per cent and above. In common with this wider economic upswing, Vietnam’s capital markets enjoyed a good year, albeit that there was something of a sell down in November as investors looked to realise gains made over the first nine months of the year. IPOs were down slightly on 2014 (which saw 44 IPOs) but 2015 closed on a high note with the listing of The Airports Corporation of Vietnam (ACV) which hit the market on 11 December and was Vietnam’s 37th IPO of the year.

By far the most significant development of the year from a capital markets perspective saw Vietnam remove (for the most part) the foreign ownership limits on public companies which had previously been capped at 49 per cent for most sectors. This restriction had acted as a brake on foreign investment with circa 30 of the better performing local public companies having hit the foreign ownership limit, with a number of others getting close.

In another positive development, in October the State Securities Commission of Vietnam (SSC) entered into an agreement with Japan’s Nomura Research Institute, to advise SSC on the development of Vietnam's capital markets. The focus of this arrangement will include the reform of the securities market infrastructure and the modernising of accounting and disclosure systems.

Assuming Vietnam’s economic performance can be sustained into 2016, the prospects for the capital markets in the year ahead look good with a number of potential marquee listings such as Sabeco and Mobifone being mooted.

Thailand Although 2015 was a mixed year for the Stock Exchange of Thailand (SET), the pluses outweighed the minuses and it continues to be envied by a number of its ASEAN rivals for its consistently strong levels of retail investor participation and related liquidity. SET’s average daily trading volumes were the highest in ASEAN in each of the three years to end 2014.

There were a total of 41 IPOs on SET in 2015 (Main Board 28, Market for Alternative Investment (mai) 13) down slightly on 2014, which saw an aggregate of 45 IPOs (Main Board 25, mai 20).

The stand-out deal of the year was the listing of Jasmine Broadband Internet Infrastructure Fund (JBIIF) by Thai telecommunications group Jasmine International PCL – Thailand's biggest IPO since December 2013. JBIIF raised around US$1.13 billion for the expansion of the group’s high-speed broadband network.

2015 also saw Thailand continue with its ongoing efforts to attract foreign issuers. The latest development in this trend will see Thailand’s Ministry of Finance consider applications for the issue of bhat-denominated bonds by foreign issuers on a monthly basis, replacing the existing system whereby issuers could only apply in one of the three approval windows in March, July and November. The revised regime should provide issuers with greater flexibility and increase the scope for them to take advantage of favourable market conditions.

This move is further evidence of Thailand’s ambitions to become a funding hub for the greater Mekong region. Indeed, the recent success of the Lao sovereign bond issue (see above) has piqued the interest of the Myanmar and Cambodian Governments, both of which are eyeing similar offerings.

SET was arguably the region’s best performing bourse of the year in 2015 and goes into 2016 with reason to be positive. In particular, the Thai economy is less exposed to the depressed commodity sector than most of its ASEAN colleagues, and with increased interest from the wider Mekong and a commitment to attracting foreign issuers, the indicators look good.

Client Alert 2016-061