Why Malaysian Equities

Malaysia’s persistently high economic growth rate over many decades (see Why Malaysia), the development of a large local fund management industry, and the presence of huge retirement and other funds underpin the growth and stability of the equity market.

Malaysia benefits from its geographical location being in the centre of ASEAN – one of the highest growth regions in the world, with a diversity of people and economies. Malaysia therefore offers a unique combination of being the country base of companies whose earnings are strongly rooted in the safe and stable Malaysian economy, but also have significant presence in ASEAN and the rest of the Asian region, to offer higher growth possibilities.

Azhar Zabidi, CEO of Capital Markets Malaysia, says: “We (Malaysia) are a maturing market within the high-growth ASEAN region with countries such as Vietnam, Cambodia and Indonesia. These countries, being in the early stages of development, offer higher growth than the more developed countries within ASEAN. Within Malaysia, we have companies in specific industries that operate beyond our shores – not only do they have Malaysian businesses but often seek opportunities within other high-growth countries in ASEAN and regionally.”

Half of the top 10 listed companies in Malaysia have a regional presence, offering investors regional diversification in addition to domestic exposure. For instance, the two largest banks in Malaysia – Malayan Banking and CIMB Group – have a very strong regional presence. Malayan Banking – the country’s largest bank and among ASEAN’s largest, with a market capitalisation of some RM83 billion (over US$20 billion) – is also Malaysia’s biggest listed company. CIMB Group – the second largest bank in Malaysia in terms of assets – is among the largest listed companies in Malaysia. Both banks are regionally diversified with a strong presence in Indonesia. CIMB is particularly strong in Thailand, while Malayan Banking has a well-established presence in the Philippines. In these countries, a rapidly growing middle-class population and rising affluence offer growth opportunities for the Malaysian banks.

Companies in other sectors include telecommunications giant Axiata, which is regionally diversified, with a strong presence in Indonesia, Singapore, Cambodia and Sri Lanka.

IHH Healthcare is the second largest listed healthcare company in the world. It operates hospitals and medical centres in Singapore, Malaysia and Turkey, as well as China, India, Hong Kong, United Arab Emirates, Macedonia, Brunei and Iraq.

The Genting group is among the world’s largest and most profitable casino operators, and AirAsia is among the most successful low-cost airlines in the world and has a dominant presence in ASEAN air travel.

Further examples include plantation giants such as Sime Darby – the world’s largest plantation company –, and IOI and FGV, which have plantation operations across the region and elsewhere.

Huge Assets Under Management a Bulwark against Volatility

The presence of a strong domestic fund management industry within Malaysia acts as a bulwark against market volatility.

The large size of assets under management (AUM) in Malaysia provides liquidity and support for the equity market. The Employees Provident Fund (EPF), other state, corporate and pension funds and a large number of unit trusts funds collectively account for some RM670 billion of AUM in Malaysia.

A Fast-Growing Market

The Malaysian equity market is one of the fastest growing in Asia and among advanced emerging markets. It also has the highest number of public listed companies (PLCs) in ASEAN with a total of 903 PLCs as at 31 December 2015.

The Malaysian equity market is well-supported by a large pool of domestic institutional players making up 65% of the shareholder mix on the Malaysian stock exchange, and nearly a quarter consisting of foreign institutional investors. These pave the way for steady returns amid a volatile global environment. The Malaysian stock market has provided steady returns to investors, and is the second highest in terms of market capitalisation in ASEAN.

As at 31 December 2015, the total equity market capitalisation for Malaysia stood at RM1.70 trillion (approximately US$383 billion). For 2015, the highest amount of funds raised from secondary markets in ASEAN was in Malaysia with US$4.352 trillion.

Malaysia has an 8.21% weightage on the MSCI Asia Pacific Risk Weighted Index, and 10.97% ex-Japan – the highest among ASEAN countries –, signifying its importance in the region.

Chart source: MSCI

Malaysia's equity market success in raising long-term financing for small cap companies is reflected by the strong performance in the technology, mining and construction sectors. Therefore, it is well poised to serve as a regional platform for growth for many small and mid-cap companies.

Source: Securities Commission Malaysia

Malaysia is also a great market to launch Initial Public Offers (IPO). It is possible to go to listing from the time the process is first initiated in just 28 weeks. Companies with overseas operations and with little or no businesses in Malaysia can also list here.

Source: Securities Commission Malaysia

The Malaysian equity markets have strong safeguards for foreign investors, especially in terms of protection for minority shareholders, where it was ranked fourth by the World Bank in 2015. The industry regulator, Securities Commission Malaysia (SC), while striving for prudential regulation, encourages an open and free market with a level playing field conducive for innovation and development.

The equity market, with companies listed on Bursa Malaysia Bhd, keeps up to best international practices. High disclosure standards, including quarterly reporting, are mandatory for listed companies and standards are being constantly upgraded. The SC does not shy away from pressing charges for both errant directors and traders. A close vigilance is kept on trading activities and those involved in manipulation are brought to court after investigations.

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