KUCHING: Malaysia is now in a leadership position after spending more than a decade working to strengthen its capital market and related institutions following the 1997-1998 crisis.
BOOMING: Malaysia is now set to pivot from being a strong and well-regarded local market to a regional or even a global player.
The country maintained its title as the initial public offering (IPO) capital of Southeast Asia for 2012, and in all likelihood would remain so for much longer, with its bond market continuing to grow and complement the equities market.
“The challenge now is to take this strong foundation and build on it, and this may not be easy. It will not simply be a matter of more and bigger listings,” Oxford Business Group (OBG) said in its Malaysia Report 2012 published recently.
“The country will need to begin to broaden its capital markets so that a wider range of clients can get funding and so investors can achieve higher returns,” it added. “If Malaysia succeeds in making this transition, it stands to improve overall returns and keep its regional leadership role.”
As at the end of 2011, Bursa Malaysia Bhd (Bursa Malaysia) had 941 listed companies and a market capitalisation of RM1.275 trillion, up from RM1.275 trillion a year earlier, and almost double the market cap of 2008.
The exchange featured 28 IPOs in 2011, down one from 2010, and reported average daily trading value of RM1.8 billion in 2010, but lower than the trading value recorded in 2007.
According to the report, foreigners own 18 per cent of the equity in the market and were responsible for 26 per cent of the trading in 2011.
“Expectations are for the valye of new listings in 2013 to be similar to that of 2012, if economic conditions remain the same. But the size of individual IPO transactions is not likely to be as large as the listings in 2012 of IHH Healthcare Bhd, Felda Holdings Bhd and Astro Malaysia Holdings Bhd,” it elaborated.
As of October 2012, 15 companies had gone public in Malaysia, with 13 companies listed on the Bursa Malaysia main board and another two on the ACE market.
Moving on, OBG pointed out that the derivatives market is still evolving and expanding.
Since year 2009, when the bourse started to use a trading platform provided by the CME Group, activity was increased by 47 per cent, while foreign participation increased from about 20 per cent to 28 per cent through the end of 2011.
It said changes had also been made to help ensure investor interest, which included the addition of new contracts as well as the reintroduction of defunct contracts.
Despite the health of the Malaysian capital market as well as the soundness of its infrastructure, there were some concerns about the market’s structure.
“While the brokerage sector is not as concentrated as the banking sector, competition may be limited. The major institutional investors remain for the most part large and conservative, and they also crowd into the higher-rated paper, generally ignoring anything under AAA or AA,” it explained.
OBG further pointed out that the high-yield market was of little interest to pension funds and other larger pools of capital because their charters largely prevent them from buying anything not investment grade.
Given that, some institutions were already begining to seek ways to break away from the pack and managers of large pools of capital were forced to find ways to enhance their portfolios.
“Therefore, portfolio strategy teams are now looking at stronger diversification into other asset classes such as commodities, private equity and alternative investments going forward,” it concluded.