There has been a lot of talk about the long term cycle of international capital flows to emerging markets reversing once the US central bank finally ends its current monetary policy. We all know it will happen eventually, and most pundits seem to look at all emerging markets as if they were one asset class and not unique economies and cultures in various stages of development. A big question on many people’s minds is obviously how a flight of capital back to the developed world would affect the investment environment in Myanmar.I personally am optimistic that in the long run the country may just end up better off for it.
My main line of reasoning is that the kind of money that will be fleeing emerging markets is what has come to be known as “the electronic herd”. Big institutional money can flow in and out of sovereign debt and equity markets in today’s computerised age at a speed that is quite mind boggling. When this type of money flows into an economy too quickly, it is often put to use in very inefficient ways. One only needs to look back to 1997 to see the consequences when the tide turns and the underlying fundamentals crumble in the absence of easy money. While I have been frustrated that there is not yet a big Myanmar equity fund yet that I could access from international platforms in order to get my private clients exposed to the country, this will no doubt save the country from a crisis if there is a mass run for the doors from emerging markets when the US central bank eventually does raise interest rates.
While it may be counterintuitive slightly, I think it may be a blessing in disguise that the opening up of the country is a slow and measured process.
Myanmar needs what I call “the smart money”, not the electronic herd. These savvy investors are often moving in the opposite direction of the electronic herd, or are entering the markets so far ahead of them that they are banking their profits when the herd finally rushes in. Unfortunately as with most things in life, the things worth doing are usually not easy. It can be quite scary to invest as a contrarian and go against what the masses are doing, yet that is what the world best investors make a habit out of doing. I have problem written more times than I can remember that Warren Buffet always makes his biggest purchases in the midst of market crashes.
A good friend of mine has recently just moved to a part of the country just recently opened up to foreigners and is trying to first get a simple guesthouse going and then try to develop the town into a resort area. This is a huge risk on his part, and the struggles he has been dealing with are enough that you could write an interesting book about them. Yet you can bet that he is not going to turn and flee if emerging markets suddenly fall out of favour with the big banking centres of the world. I have full faith that he will succeed beyond his wildest dreams if he stays the course. The electronic herd rushes in after big gains have been made by the smart money, when it looks safe and an asset class or economy or company has a proven track record.
If the big reversal does happen and the big capital flows begin to move back to the developed world from the emerging markets (and don’t forget that this is not a given), the big multinational companies will continue with their direct investments into Myanmar. Private equity and other sophisticated investors will continue to invest in the country, but the opportunities will not get crowded out by the electronic herd leading a manic throwing of money at anything that moves. These cycles repeat themselves anyways, so even in the worst case scenario give it another decade and the electronic herd will be back drooling over the track record that the smart money has been building up while emerging markets are out of vogue. The less fast institutional money comes into the country means more opportunities for small time investors and for local Burmese investors to take advantage of the opening up of the country. That, in my opinion, would be a very good thing.
David Mayes MBA provides wealth management services to expatriates throughout Southeast Asia, focusing on UK pension transfers. He can be reached at david.m@ faramond.com. Faramond UK is regulated by the FCA and advises on pensions and taxation. Views expressed here are his own.