Investors wake up to Burma

Burma's liberal reforms to its economy are attracting international investment. But you should still be wary.

"Capitalism is on the march" in Myanmar, or Burma, says Thomas Fuller in The New York Times. Political and economic liberalisation is already spurring investor interest in the once-isolated former socialist military dictatorship.

Early last year, the military regime handed over power to a civilian government. President Thein San began to relax the state's grip on the economy. Now Coca-Cola billboards are all over the place and "a new car dealership seems to open up every week". President Barack Obama's visit this week, the first by a US president, highlights Burma's rapid recent progress.

Almost every day brings fresh news of "investment plans, distribution deals and high-level business missions", says Gwen Robinson of the Financial Times. Foreign firms are encouraged by the government's new foreign investment code, especially as it makes no mention of caps on foreign ownership of joint ventures.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Burma has plenty of attractions. The population of 55 million is highly literate. The country is located on global trade routes between China, India and southeast Asia. It is also rich in natural resources, including oil and gas: Australia's Woodside has just announced plans to help develop gas reserves. As a result, local property markets "have gone berserk", says David Stevenson in the FT. In Yangon (Rangoon), prices are up 39% this year.

Intriguing as all this sounds, potential investors should be wary. "The reforms are gaining momentum but they have still not reached the point of no return," says one local newspaper editor. There are still hardliners in the government who might be tempted to turn back the clock. Sectarian violence is rife, says Fuller, and the changes seen so far have only touched "a small sliver" of the population. A consumer society won't emerge in a hurry.

Banks are "dysfunctional" and "thickets" of red tape hurt enterprise. "The legal and regulatory environment and the financial system remain... very weak," says Stephen Groff of the Asian Development Bank.

There's no stockmarket, so it's not yet possible for private investors to take a punt directly. But if you are interested, investment group Silk Road Management has designed an index tracking Burma-related firms on other Asian indices. It plans to launch a fund, using this index as a benchmark, by the end of 2012, with a minimum investment of $10,000.