Scion Industrial Engineering

Myanmar’s New Role in the Economic Tilt Towards Asia

In June 1960, Tom Monaghan and his brother James bought DomiNick’s, a small pizza store in Ypsilanti, Michigan.

In this town of less than 20,000 people, the brothers gave a $75 down payment and borrowed $500 to acquire the store. Barely eight months later, James bartered his half of the business to Tom for a second hand Volkswagen Beatle.

Over the next few years Tom worked hard and set up two more stores. It all went well except one thing. The initial owner refused him the right to use the original name DomiNick’s. After some thinking Tom come up with an alternative name: Domino’s Pizza, Inc. He also designed a logo – containing three dots representing his three stores, and the plan was to add further dots as the chain expanded.

At the same time American politics took a new turn. In November 1960, John F Kennedy was voted in as U.S. President. In Asia, he increased the country’s support for the South Vietnamese regime.

The domino effect

President Kennedy was influenced by game-theory specialists who envisaged a scenario whereby Asia would fall under communist influence one by one – the ‘domino effect’ – and threaten the global economy.

In November 1963, the leader of South Vietnam, Ngo Dinh Diem, was murdered in a military coup. Three weeks later Kennedy was assassinated in Dallas, and his successor, Lyndon B. Johnson, would continue to use domino theory to justify the escalation of the US’s military presence in Vietnam from a couple of thousand to more than 500,000 over the next few years.

In 1965, the same year that Domino’s Pizza got its name, America started the Vietnam War. This would change the world in three major ways. Firstly, the war was extremely costly, forcing the Americans to sharply increase borrowing domestically and internationally.

Secondly, the sharp increase in American debt would trigger the unraveling of the Bretton Woods Agreement, put in place towards the end of WWII among leading economies, and the end of the direct convertibility of the United States dollar to gold.

Thirdly, and perhaps most profound, it would usher in emerging markets, particularly Asia, as an asset class.

All these things took shape in a world that looks very different to today. In 1960, the share of the world’s real GDP was squarely in favour of America and Europe. Asia only accounted for a sixth (16.8%) of the world’s real GDP.

But the American presence and the war acted as a catalyst for Asia. A lot of funds, technology and human resources were channeled into the region.

Tipping point

In Thailand the American army built airports, roads and army bases across the country, including a marine base, which still sits on South Sathorn Road in Bangkok, now surrounded by luxury hotels, condominiums and embassies.

They also set up numerous scholarships for young, bright Thais to study in the US, which helps to explain why corporate Thailand is so Americanized, from the accounting and reporting standards of the Thai Stock Exchange, which was set up just after the end of the Vietnam War in 1975, to the cadres of top management at listed companies.

Consequently, Thailand and other Asian economies began to catch up with the West. In 2015 Asia’s share of global GDP had jumped to 45.4%, according to estimates by worldeconomics.com.

A lot of pundits believe that Asia will continue to grow, and surpass the 50% mark by 2020. If that is the case, we are about to reach a tipping point where the world economy is tilting towards Asia.

Myanmar is a great case in point. Not only is it home to an economy where GDP growth reached 7% in 2015 – making it one of the fastest growing economies in the region. It also has the world’s youngest bourse, The Myanmar Stock Exchange, which opened earlier this year.

For impatient investors unwilling to wait until the local market has grown enough depth, size and liquidity there are a number of Asian-listed companies which have operations in the country or are planning to put money into brownfield investments.

Of course, from time to time there will be setbacks and concerns. But it looks pretty certain that Myanmar and its economic growth will be important for investors looking for returns in Asia.

Skeptics will say the relationship between economic growth and stock market performance is weak. Perhaps, but an investor who put down $1 in the 1960s in emerging markets would have $75 today.

Compare that with the performance of developed markets. The S&P 500 Index has returned about $25 over the same period. Over the last 50 years emerging markets have outperformed developed markets by a factor of 3 to 1.

So what does this have to do with pizza? The performance of Domino’s Pizza has also been astounding. It is now the world’s second biggest pizza chain, after Pizza Hut, with 12,600 stores in 80 countries. It serves more than a million pizzas a day worldwide.

Fifty five percent of its stores are international, and the company sees a lot of future growth in emerging markets, particularly in Brazil, India, Malaysia and Turkey.

After listing in 2004, Domino’s share price languished for a few years before ascending after the onset of the great financial crisis of 2007 and 2008. Since then the stock has risen fivefold and the market cap is a whopping $7.3bn.

It would foolhardy to bet against a force that has been in motion for over 50 years. There is no sign of a change in this trend on the horizon.

Lars, a new Myanmar Business Today contributor, is an emerging markets expert with many years experience in Asia, helped by his command of five languages including Thai and Malay. He is a portfolio & strategy advisor focused on idea generation, market analyses and risk management for Asia ex-Japan funds. He divides his time between Southeast Asia and London.

Source:https://www.mmbiztoday.com/articles/myanmar-s-new-role-economic-tilt-towards-asia