Malaysia: Bursa Malaysia

 

Ryan Hessenthaler at Bursa Malaysia

Bursa Malaysia is the primary exchange in Malaysia and one of the most active exchanges in the region.  The exchange is located in an imposing and impressive building not too far from Independence Square and the Central Market in the heart of Kuala Lumpur.  Like other exchanges I’ve visited in Australia and Southeast Asia, Bursa Malaysia is an integrated exchange, offering services across the board and across asset classes.

While many asset classes are traded here, the exchange is driven primarily by equities and commodities – which is another recurring theme I’ve seen on my trek thus far.  I was hosted at the exchange by Koay Lean Lee (VP, Investor Relations) and Rasmona Abdul Rahman (VP, Financial Planning & Analysis).  Koay noted that commodity trading is significant enough (and presumably profitable enough) at Bursa Malaysia that U.S.-based CME owns a 25% stake in the derivative segment of Bursa’s exchange business.  They’ve seen double-digit growth in derivative trading at the exchange in recent years.

There are currently 900 securities listed on the exchange and the type of listing is segmented into two categories: 1) the Main market and 2) the ACE market.  The Main market includes the largest, most well-established Malaysian companies.  The primary equity benchmark for Malaysia is the FTSE Bursa Malaysia KLCI Index which tracks 30 main market stocks.  Main market stocks must meet higher listing requirements, such as having at least 3-5 years of profits, in order to go public.

The ACE market, by contrast, caters to smaller companies who may not have track records or lengthy histories.  This market is a growth market and the listing fees are lower compared to the main market.  As Koay explained, to get listed on the ACE market, a company must simply convince the exchange ant the regulators that they’re a viable business and need access to the capital markets.

Koay also mentioned that Bursa Malaysia is considering creating a feeder market which would be below the ACE market in terms of listed requirements and expenses.  The exchange is eager to encourage business and entrepreneurialism in Malaysia.

Fixed Income – Retail bonds are a relatively new concept in Malaysia.  They highlighted an MRT (rail/metro system) project that is being financed through retail bonds.  This particular issuance is similar to municipal bonds in the U.S. as holders receive some tax incentives for participating.

Options – While the concept exists, there is no active options market in Malaysia.  Options trading only started in Malaysia within the last 2-3 years and options remain unknown or an enigma to most Malaysians.  From an exchange perspective, the market making framework required to offer a viable options market just simply doesn’t exist yet in Malaysia.

ETFs – Another relatively new product in the Malaysian investment sandbox are ETFs.  There are 7 ETFs currently listed on Bursa Malaysia and they are ASEAN themed and based on Islamic law.  The exchange is eager to have more ETFs listed and is working with groups such as BlackRock to bring new products to market.  Investors aren’t the only ones who need ETF education; the approval process to bring new ETFs to market is extended because of the newness of the product.

Ryan Hessenthaler with Koay Lean Lee and Rasmona Abdul Rahman of Bursa Malaysia

By contrast, Koay noted that unit trusts are quite popular in Malaysia because they’ve been around a while and have a well-established distribution network.  The downside to unit trusts is the very high costs associated with them – generally 5% front-end sales loads and meaningful ongoing fees.  Most investors know that unit trusts in Malaysia are expensive, but use them anyway as they provide management and oversight that individuals either can’t do or don’t want to do on their own.

Foreign institutional managers are represented in Malaysia and are enjoying some early-mover advantages.  Firms like Aberdeen and Templeton work with the Employee Provident Fund (EPF) as the fund outsources management of capital to U.S. firms.

We spent some time reviewing a few of the highlights in their most recent annual report.  I’ve included a copy of the summary version below.  I recommend a quick review of the summary report – it’s always fascinating to compare first-hand impressions and observations against the quantitative results.

 

Special thanks to Brennan Staheli, Daniel Doxey, and the Lunt Capital team for their contributions to this report.