Malaysia will focus on turning domestic companies into regional champions

Malaysia Champions New Focus of Stock Exchange

By Matthew Winkler, Elffie Chew and Gan Yen Kuan  Feb 20, 2013

Bursa Malaysia Bhd. Chief Executive Tajuddin Atan said the exchange will focus on turning domestic companies into regional champions after spending the past five years boosting corporate governance and investor protection.

The Southeast Asian nation will promote companies in industries such as palm oil, Islamic finance and oil and gas, after putting in place governance rules that match standards in Singapore and Thailand, Tajuddin said. He declined to specify what steps the exchange would take.

“We have to start moving outside our borders,” he said in an interview at the bourse’s headquarters in Kuala Lumpur yesterday. “Now the challenge for us is to liberalize the market and start profiling what we have.”

Bursa Malaysia, which operates Southeast Asia’s third largest stock market, is seeking to lure investors to a nation that was the world’s fifth-largest destination for initial public offerings last year. Malayan Banking Bhd. is the country’s sole entry in the world’s 500 biggest companies by value with a market capitalization of $24 billion, according to data compiled by Bloomberg.

Two of Asia’s four biggest first-time share sales in 2012 came from Malaysia, as the nation surpassed financial hubs including London and Singapore with 21.2 billion ringgit ($6.9 billion) raised, data compiled by Bloomberg show. Felda Global Ventures Holdings Bhd., a Kuala Lumpur-based palm oil producer, lured $3.3 billion, making it the world’s third-biggest IPO last year, the data show.

Expanded Reach

Gross domestic product rose 6.4 percent in the fourth quarter from a year earlier, the fastest pace in 2 1/2 years, the Statistics Department said in a statement in Kuala Lumpur today. The economy grew 5.6 percent last year, beating the finance ministry’s forecast of as much as 5 percent in a September report.

Malaysia boasts the biggest Islamic debt market and the most liquid crude palm-oil futures contract in the world. There is scope for more of the nation’s companies to become regional champions, Tajuddin said.

Malayan Banking and CIMB Group Holdings Bhd., the nation’s top two lenders by assets, have expanded their reach in Asia in the past two years. Malayan Banking bought Kim Eng Holdings Ltd., a Singapore-based securities and investment-banking group, in 2011, while CIMB acquired Royal Bank of Scotland Group Plc’s Asian assets last year. Malaysia is also home to Sime Darby Bhd., the world’s largest listed palm oil producer by acreage, which has a market value of $17.9 billion.

“Bursa has the platform to tie up with all the Southeast Asian exchanges so they can use that to promote the smaller names within the region first,” Lye Thim Loong, who helps manage the equivalent of $500 million at Libra Invest Bhd., said by phone in Kuala Lumpur yesterday. “They can organize and actually bring these companies to the community there. But those companies also have to be proactive and must spend money to do investor relations.”

IPO Pipeline

Malaysia’s stock market was valued at $439 billion, making it Asia’s 10th biggest, according to data compiled by Bloomberg. Bursa Malaysia, with a market capitalization of $1.1 billion, is the second-biggest publicly traded bourse in Southeast Asia after Singapore, the data show.

The value of capital raised on the Malaysian exchange may be “slightly less than last year,” Tajuddin said.

A total of 28.8 billion ringgit was raised from IPOs and secondary sales in 2012, data compiled by Bloomberg show.

Initial sales have raised 386 million ringgit this year through Feb. 19, the data show. Malakoff Corp., a power producer, AirAsia X Bhd., a long-haul budget airline, and port operator Westports Malaysia Sdn. are among companies planning to list in Kuala Lumpur this year.

The market “needs to grow in size,” Tajuddin said. “I am hoping that some of our hidden gems will be looked at in the same breath as some of the bigger or more renowned names.”

Trading Link

Bursa Malaysia, Singapore Exchange Ltd. and the Stock Exchange of Thailand have led the formation of the Asean Trading Link, a platform offering cross-border stock transactions in Southeast Asia. Singapore and Malaysia were the first to connect on Sept. 18, with Thailand joining the link on Oct. 15.

Indonesia will connect to the Asean link by 2015, Ito Warsito, the president of the nation’s stock exchange, said on Oct. 15. Hanoi Stock Exchange Chief Executive Officer Tran Van Dung said the same day he expects Vietnam’s two exchanges to join within two years. The Philippine bourse may join in two-to- three years, CEO Hans Sicat said on Dec. 6.

The trading link is a “combined collaborative group” that seeks to promote an Asean asset class, with trading volumes expected to improve in one-to-two years, Tajuddin said. He didn’t provide current trading volume figures.

“I would expect a little bit more flow, especially from the top 30 companies to be traded more rapidly,” he said. “With the commitment from all the exchange heads in this region, most probably we could have a certain substantial amount of trade flow coming from that.”

Palm Oil

Malaysia’s crude palm-oil futures contract is used as the Southeast Asian benchmark for prices. Daily open interest for all products, including palm oil, reached a record on Dec. 31, according to a Jan. 16 statement on Bursa Malaysia’s website. Total derivatives volume grew 14 percent in 2012, according to the statement.

Bursa Malaysia Derivatives Bhd., formerly known as Malaysia Derivatives Exchange Bhd., is 75 percent owned by Bursa Malaysia. The remainder is owned by the Chicago Mercantile Exchange.

The exchange operator is considering a partnership with Nasdaq OMX Group Inc. in improving its trading engine. “We hope we can actually work in that partnership in the same breath as CME to start moving, regionalizing or internationalizing Bursa Malaysia,” Tajuddin said, without giving details.

To contact the reporters on this story: Elffie Chew in Kuala Lumpur at echew16@bloomberg.netGan Yen Kuan in Kuala Lumpur

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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