Saturday March 13, 2010

Getting the right balance, vibrancy and diversity

WHO are the investors that we should be targeting?
Yusli: I think we need to have a good balance. At some point for the past few years, a third of our stock market investors was foreign, a third was local retail, and a third local institutions, and that was quite a good balance.
But today, more than 50% of our stock market investors are local institutions. That, to me, has gone a bit too far to one side. We need to bring the balanced equation back.
Besides a good mix of foreign and local investors, we also need to have a good mix of investors with different strategies – short-term and long-term.

There’s excess liquidity in the banking system, but these are not going into the capital market, even though some of the big caps do offer better returns compared with fixed deposits. So, maybe we should be targeting domestic funds – retail and institutional – to invest in our own market?

Yusli: Bursa Malaysia is working closely with the participating organisations such as brokers and remisiers to tap into retail money. Increasingly, we are now seeing more domestic retail investors trading through the Internet, which is in line with the global trend.
On top of that, I hope there will be further liberalisation in terms of licensing for retail sector to bring about more competition that will result in more products being offered to Malaysian retail investors. I think Malaysian consumers deserve to have a full range of products and services that consumers in other parts of the world are getting.

Most of our retail investors are not that sophisticated. So, maybe we need to provide them with some form of protection, especially when the market is subject to manipulation, among others. What’s your opinion?

Yusli: We take these issues very seriously. Investor protection and corporate governance issues are very high on our priority list. We have a special team that constantly monitors all the trading activities in the market, and we’re quick to query the companies when we suspect some unusual market activities.

Could the lack of interest in the local market be due to the lack of good quality, investable companies around?

Cheah: Well, there are many good-quality companies in the country. Some of them are not listed, but for some of those listed ones, you can hardly see any action. They are very solid, but they just want to remain quiet and stay in the comfort zone, perhaps because they are family-controlled and are not interested to do anything else. So there are very few corporate exercises.
Chin: There are some good companies around, but some of these stocks are just not “monetisable” for the broker to justify covering because their trading volume is too low. For the brokers, a counter has to trade above a certain level (that is, at least US$1mil a day for CLSA) for it to be monetisable and worthy of our time and resources.
Yusli: Some companies are a good deal, while some may have business models that are more volatile. But just as we need different traders to play our market, we also need to have a variety of companies to cater to their varying appetite, and this could create market vibrancy.
I think that’s just what’s missing today. There’s no vibrancy in our market. We need to create vibrancy because that will bring in more liquidity.
I’d like to see more corporate activities such as major IPOs and mergers and acquisitions because these will create interest and attract attention to the market.
And as part of our effort to create market vibrancy, Bursa Malaysia has already put in place the infrastructure, including direct market access or DMA, for investors to engage in more sophisticated form of trade such as shorting, but we don’t see people using them very much.
The problem is many of our investors seem to be very comfortable doing just plain vanilla trading, while the whole world has gone sophisticated with facilities like dark pools and multilateral trading facilities.

Does having foreign listings help promote vibrancy in our market?

Yusli: At the moment, we have only a handful of foreign listings in our market. Over time, we’ll have more.
Foreign listings provide diversity, especially for Malaysians who are reluctant to trade overseas, the opportunity to invest in a foreign company. But foreign listings are still a new thing for most Malaysian, so there are still some reservation over trading in those stocks.

The perception is that not-so-good companies are being listed here because they can’t get listed elsewhere.

Cheah: I think Malaysians are just not familiar with these foreign listings. Singapore, for instance, also went through a tough initial period when they wanted to introduce listings of China-based companies.
Here, we check on the companies before they are listed, and the SC also interviewed them to ensure that they are good companies. I believe the market will gradually get used to it.
Yusli: As you’ve seen, one of these foreign companies has actually produced very good results. Again, go back to the fundamentals, and the fundamentals of these foreign listings are indeed strong. Our investment bankers have done their due diligence. They are not going to bring bad companies to list here.