KUALA LUMPUR: Malaysia’s stock exchange lacks the depth and liquidity to attract global investors, according to a report in the Financial Times.
It also said the outlook for Malaysia, and Malaysian companies, was not good, due largely to a slowing economy, weak export earnings and constrained government finances caused by a slump in oil prices.
However, the FT report added, politics could offer “the potential to revive Malaysia’s corporate fortunes and those of its stock exchange”.
“There is speculation in Kuala Lumpur about a general election next year, possibly as early as March, with traditional giveaways expected,” it said.
Foreign investors pulled out net RM19.5 billion last year and RM6.9 billion in 2014, according to MIDF Research.
So far this year, foreign equity investments are up net RM 0.2 billion.
The FT report said Malaysia’s stock exchange had been among the region’s most buoyant four years ago, but, since 2012, listings had dropped.
“Its problems since then reflect not only the country’s political and economic uncertainty, but also its difficulties in attracting foreign investment.”
The average daily traded value of Bursa’s securities market declined slightly last year, falling to just over RM2 billion.
Bursa brought in some new foreign derivatives traders following roadshows in the US last year, and it is going strong on Islamic finance, which it sees as a potential growth market.
The FT report said while revenue from Bursa’s equities market fell 3 per cent last year on lower trading from domestic investors, overall revenue grew due to rising contributions from derivatives and Islamic finance.
The report said Malaysia’s thriving pension schemes encourage asset managers to use their significant pools of savings to buy domestic equities.
“So while companies have easy access to capital, prices on Bursa are high, and trading is low as institutions tend to buy and hold — resulting in less attractive securities for foreign investors.”
The FT quoted Herald van der Linde, head of Asia Pacific equity strategy at HSBC, as saying: “It is really a recycling tool of domestic savings.”
One major factor that has impacted the Bursa is the political climate in the country following the 1Malaysia Development Bhd scandal, with allegations that more than USD3.5 billion had been ‘stolen’.
“The 1MDB affair — which is being investigated by the US and Switzerland — underlines concern about weak governance in Malaysia. Foreign banks and potential investors fear becoming entangled in regulatory inquiries,” added the FT report.