TOKYO (Reuters) - Myanmar will set up a security exchange by 2015 with the help of the Tokyo Stock Exchange and Daiwa Securities Group (8601.T), a Japanese source familiar with the deal said on Wednesday, as the resource-rich nation hunts for foreign investors after decades of isolation.
News of the exchange follows historic by-elections on April 1 which saw Nobel Peace Prize laureate Aung San Suu Kyi and her opposition party secure landslide victories, prompting moves to relax Western sanctions and triggering intense investor interest in the country.
Myanmar, the Tokyo bourse and Daiwa have been in talks to set up a securities exchange since last year, a Daiwa Institute of Research spokesman said.
A memorandum of understanding about the establishment of the bourse will be signed by mid-May, said the Japanese source.
"They have reached preliminary agreement and the signing ceremony will be next month," the source said, adding that an announcement was expected later on Wednesday.
Representatives for the Tokyo bourse and Daiwa said, however, that no final agreement had been reached yet.
Myanmar was in the grip of military rule for decades, but in the past year the junta has allowed sweeping democratic reforms, which have seen hundreds of political prisoners released and censorship eased.
Suu Kyi's National League for Democracy won 43 of 45 seats contested in by-elections on April 1, dealing a major blow to the ruling military-backed party which now governs Myanmar.
The United States and the European Union have said they may relax some sanctions - imposed over the past two decades in response to human rights abuses. China, a long-time ally, has called for all sanctions to be lifted.
Myanmar has shown signs of pulling back from the orbit of China, and attracting foreign investors will help the country in that endeavor as it seeks to rebuild after years of isolation.
Japan's second-biggest bank, Mizuho Corporate Bank, said it opened an office in Myanmar last Friday in expectation of increasing foreign investment, while Japanese convenience store chain Lawson Inc. said it was also planning to move there.
But the new bourse is not Myanmar's first experiment with a stock exchange. The tiny Myanmar Securities Exchange established in 1996 is the forgotten bourse.
In a quiet room in an aging office block of Myanmar's commercial capital Yangon, a worker scribbles on a whiteboard beneath a row of out-of-sync clocks, updating prices in what could be the world's smallest stock market.
There's no trading floor, no flashing screens and no televisions showing financial news channels. Just eight employees who handle over-the-counter transactions and manually update share prices, using a whiteboard, a marker pen and a stencil. Every so often, a customer drops by.
A trickle of customers each week buy and sell shares in two listed companies on a bourse few Burmese or foreign investors know exists.
No new companies have signed up beyond the first two: Forest Products Joint Venture Corp (FPJVC) and Myanmar Citizens Bank. Both are jointly owned by the government and private investors.
For those who got in early, returns have been generous. FPJVC sold shares between 1993 and 1996 -- mainly to well-connected bureaucrats -- and has delivered dividends of about 25 percent a year, more than double local bank interest rates.
The problem for early investors was that soon after the exchange opened for business, the military junta began rounding up hundreds of pro-democracy supporters in a major crackdown, which spooked foreign firms and led to sanctions.
Mainland Southeast Asia's biggest country became one of the world's most difficult for foreign investors, restricted by sanctions, starved of capital and marred by mismanagement.
Now investors are again eyeing Myanmar, hoping to invest in a country of 50 million people that just over 50 years ago was one of Asia's most promising, the world's biggest rice exporter and a major energy producer.
Additional reporting by Taiga Uranaka and Nobuhiro Kubo; Editing by Edwina Gibbs and Michael Perry