Thursday, July 27, 2017

Poor knowledge main reason for investor losses; more education, corporate governance needed

ECONOMISTS are calling for stricter laws and more education to protect unwitting investors from financial fraud.

A man takes a photograph of an electronic board showing the FMI index at Yangon Stock Exchange. Photo: EPAA man takes a photograph of an electronic board showing the FMI index at Yangon Stock Exchange. Photo: EPA

This, after the Securities and Exchange Commission of Myanmar (SECM) in June ordered one company, Saxon Capital Limited, to cease operations for illegal trading and issued notices for the public to come forth with information on a second company, I Smart Co, for engaging in similar activities this month.

Such problems stem from the lack of strict laws governing financial fraud.

“The law must punish the companies that cheat. Only then will the number of cheating companies be reduced,” an economist told The Myanmar Times.

Poor knowledge

However, the main reason for the rising number of scam victims is poor education and lack of investment knowledge among the public.

“Lack of knowledge in investing is a problem not only in Myanmar but also in other countries. But it is worse in Myanmar because the market is in its early stages where ignorance among investors is high,” the economist said.

For now, the Securities Exchange Law protects investors from financial fraud. “But the nature of investing the capital market is accepting the risk of losses. It is the basic principle of capital market. Thus, it will be more beneficial for investors if investments are made only when one understands the capital market,” Economist Dr. Aung Tun Thet said.

With the launch of the Yangon Stock Exchange (YSX) in March last year, investors can now safely invest in the shares of up to 6 companies.

“But investing in a company doesn’t guarantee profits. Even experienced share traders sometimes see the price of their shares fall when the company suffers losses, said Dr. Aung Tun Thet.

In fact, investors should be on the alert when a company promises profits without being able to show any sound business activity.

Corporate governance

Still, it will take time for the investing community to mature and investors to become savvier at trading. In the meantime, trading on the YSX could take a hit. Already, trading volumes this year so far is lagging behind that of 2016.

For its part, YSX senior executive manager U Thet Tun Oo reckons better corporate governance processes should be implemented to monitor the business activities of companies operating in Myanmar.

“The [corporate governance] system here is weak, which allows companies to cheat easily,” he said.

“We need a monitoring system as well as a separate organisation dedicated to checking that system. Only then we can prevent companies from cheating or bypassing the law,” U Thet Tun Oo continued.