Local high net worth individuals are also looking at other jurisdictions to expand their investment horizon, adding to the somewhat subdued interest in local stocks.
Last month, of the RM20.8 billion worth of stocks traded on Bursa Securities, foreign participation was a mere 28.21%, of which 27.77% was institutional and 0.44% retail. Local institutional participation stood at 39.38% while local retail was 18.50%.
Bursa Malaysia Bhd CEO Datuk Yusli Mohamed Yusoff said the Malaysian capital market still held the attention of international institutional investors, albeit at a lower percentage than before the global financial crisis.
He said from Bursa Malaysia’s various roadshows with foreign investors and fund managers, it was found that the Malaysian market had many unwarranted perception issues.
“Many foreign investors still think that there are capital controls, foreign ownership restrictions and exchange rate pegging even though these have been removed several years ago.
“They are not aware of the reforms done to open up the economy and liberalise the capital market,” he told The Edge Financial Daily.
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“We have in place strong fundamentals and a sound regulatory framework and we continue to reach out to the market to communicate these strengths.
“The low participation is also attributed to increasing foreign attention to other emerging markets. Our market is also fighting for the same investing pie,” he said.
The dilemma faced by Bursa Malaysia is further compounded by an emerging trend of more Malaysian investors seeking their fortunes offshore, as pointed out recently by Datuk Seri Nazir Razak, group chief executive of CIMB Group.
Nazir reportedly said that for the past 18 months, retail investors had been investing offshore through many networks, including CIMB.
Yusli said Bursa Malaysia conducted investment roadshows and investor relations programmes with senior government officials, regulators and senior personnel of listed companies to profile investment opportunities, and to ensure that the local market had a greater visibility among foreign fund managers.
“We are also stepping up efforts towards enhancing foreign attention via internationalising our offerings and this is demonstrated by the recognition given by global jurisdictions in relation to working together as a trading and investment partner,” he said.
Yusli said the recognition accorded to Malaysia as an approved investment destination under China’s Qualified Domestic Institutional Investor scheme administered by the China Banking Regulatory Commission was a significant development in paving the way for China funds seeking investment opportunities in this part of the region.
In addition, the US Commodity Futures Trading Commission has given its approval for Malaysian futures brokers to solicit and accept orders and customers’ funds from US clients, without the need to register separately as a futures broker in the US.
“This positive move will enable our derivatives products to further gain wider market access and thereby, encourage more cross-border trading,” he said.
Aberdeen Asset Management Sdn Bhd head of equities Abdul Jalil Rasheed said not having large foreign participation should not be seen as unhealthy.
He said foreign institutions had varying mandates when investing regionally, and some factors, such as liquidity and the fact that Malaysia was a defensive market may deter investors from investing in Malaysia.
“Fund managers who are top down (who look at macro factors) will have more money in China and Indonesia while bottom-up fund managers, like Aberdeen, are actually overweight on Malaysian equities because we find many good quality, well-run companies here.
“Again, decisions to invest in a particular market take into account many factors and the fund managers’ investment style and philosophy, and not just the stocks,” he said.
On whether Malaysian equities were just not attractive enough for foreign investors, Abdul Jalil said when investing regionally, firms looked at many countries, so the universe was spread larger making the radar screen for Malaysia much smaller.
“Malaysia also suffers the stigma of being a defensive and dull market — which is not a bad thing from Aberdeen’s point of view — compared to other Asian markets.
“If we go back some time, we would have seen that foreign participation in Malaysia was high when other regional markets crashed, many saw Malaysia as a safe haven,” he said.
Meanwhile, MIDF Research said June was an aberration and volume in the local market fell by more than 50% because of the school holidays and the World Cup.
It said this trend was somewhat similar regionally and funds going into bonds were seen as a flight-to-safety as investors turned more risk averse.
“Malaysian equities are currently trading above its five-year average price-to-earnings multiple and is also at a premium to regional peers like Thailand and Indonesia, while growth rate in those two countries is estimated to be higher.
“This may be a reason for foreign funds to shy away from Malaysia, which offers a lower rate of growth, both in the economy as well as corporate earnings,” it said.
MIDF Research said for foreign participation to increase, trading volume of big-cap stocks has to be more liquid. The government’s continuous effort to further liquidate its position in listed GLCs was a step in the right direction in creating a more balanced and vibrant trading market, it added.
Written by Surin Murugiah
This article appeared in The Edge Financial Daily, July 12, 2010.
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