Templeton Cautions Investors Riding Myanmar, Cambodia Growth

Mar 31, 2012
By Shamim Adam
Bloomberg

Investors should be cautious when pursuing the opportunities for growth present in Myanmar and Cambodia, Southeast Asia’s frontier markets, Templeton Asset Management Ltd. said.

While Myanmar’s natural resources of oil, gas and minerals are positive factors, there are “areas of concern,” Templeton portfolio manager Dennis Lim wrote in a note today on Chairman Mark Mobius’s blog. Although Cambodia is “ideally located” to benefit from trade with Thailand, Vietnam and Laos, investors need to study corporate governance standards, he said.

“Weaknesses we’re especially mindful of in Myanmar are lack of a proper legal structure, the lack of a well-developed banking system, and the lack of solid foreign exchange operations,” Lim wrote. “In Cambodia, I would caution potential investors to monitor corporate governance standards to ensure investors are treated fairly.”

Myanmar will tomorrow hold its most inclusive elections since the military rejected an opposition victory in 1990. Prospects of democratic foundations in the nation of 64 million people between China and India encouraged the U.S. to consider easing sanctions, with companies from General Electric Co. to Standard Chartered Plc awaiting opportunities to invest.

Phnom Penh IPO

In Cambodia, state-owned Phnom Penh Water Supply Authority will have its initial public offering next month, making it the first to be traded on the stock exchange that opened last July without a single listed company. The Cambodian government has said it wants to spur economic development by selling off state- owned companies and encouraging private enterprises to expand with new funding.

Mobius, who oversees more than $50 billion in emerging- markets assets as executive chairman of Templeton Emerging Markets Group, has said he’s watching the Cambodian railroad industry “with particular interest.”

Indonesia, whose natural resources include timber and coal, can benefit from increasing global demand for commodities as emerging markets invest in infrastructure, Lim said. Thailand, which suffered its worst floods in almost 70 years in 2011, will have a sound economic recovery and has “positive” long-term fundamentals, he said.

Agriculture, Tourism

“For value investors like us, current valuations in Thailand generally remain attractive, though the potential growth obstacles do bear ongoing scrutiny,” Lim said. He cited agriculture, tourism and offshore gas as drivers of growth.

Singapore’s stock exchange is a conduit through which Templeton can access new markets because of listings by some companies from the frontier economies, Lim wrote.

“Investing in Singapore, though, comes with its own set of challenges,” he said. “Its domestic market is small and the economy is a very open one as it doesn’t restrict trade, development and capital flows with other countries. This means that Singapore is more closely linked to the movements of the global markets and affected by global market volatility like the global financial crisis and the challenges from the euro zone.”