Why Malaysian Equities

Malaysia’s consistently high economic growth over many decades (see Why Malaysia ) has led to the development of a large local fund management industry based on the presence of several retirement funds that have helped finance corporate funding needs and underpin the growth and overall stability of the capital market.

Malaysia benefits from its geographical location being in the centre of ASEAN. As a maturing emerging market, Malaysia is home to a diverse portfolio of companies across all key economic segments with a significant presence in ASEAN and the rest of the Asian region.

Azhar Zabidi, CEO of Capital Markets Malaysia, says: “We (Malaysia) are a maturing market within the high-growth ASEAN which consists of 10 countries at different levels of economic growth. Each country boasts a unique offering of numerous natural resources and service capabilities. Many countries are at early stages of development and offer higher growth than the more developed countries within ASEAN. Within Malaysia, we have companies in many industries that operate beyond our shores. These companies not only have significant Malaysian businesses but are geographically diversified in other 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 (Maybank) and CIMB Group – have a very strong regional presence. Maybank – the country’s largest bank and among ASEAN’s largest, with a market capitalisation of some RM 101.4 billion (over US$24 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 Maybank has a well-established presence in the Philippines. In these countries, a rapidly growing middle-class population and rising affluence offers 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. IHH Healthcare in Malaysia has 14 hospitals nationwide and comes second to Turkey with 20 hospitals.

The Genting group is among the world’s largest and most profitable gaming companies, and AirAsia Bhd is among the most successful low-cost airlines operators in the world with dominant presence in ASEAN air travel as well as the rest of Asia. In May 2017, AirAsia Bhd. signed a memorandum of understanding (MoU) with Everbright and Henan Government Working Group outlining how the parties will incorporate a joint venture to establish a low-cost carrier in China to be known as AirAsia (China).

Further examples include plantation giants such as Felda Global Ventures (FGV), IOI group and Sime Darby. Sime Darby is the world’s largest plantation company and is also involved in other key sectors such as logistics, property development, industrial equipment manufacturing, automotive production and assembly and healthcare.

There is also Malaysia Airports Holdings Berhad (MAHB) that has gained global recognition in their expertise of airport management and investments in other airports overseas such as the Indira Gandhi International Airport, New Delhi, the Rajiv Gandhi International Airport, Hyderabad and the Istanbul’s Sabiha Gokcen International Airport in Turkey. Besides, they provide with certified and recognised global training centres that focus on providing airport operations and management, airport fire and rescues service and aviation security courses to MAHB’s employees and participants from Malaysia and across Asia Pacific region.

MISC Berhad (MISC) is a world leading provider of international energy related maritime solutions and services. MISC Group’s fleet consists of more than 110 liquefied natural gas (LNG), Petroleum and Product vessels and floating assets. Their fleet has a combined capacity of approximately 12 million dwt (deadweight tonnage).

Significant assets under management a bulwark against volatility

The presence of a strong domestic fund management industry within Malaysia acts as a strong defence 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 trust funds collectively account for some of Malaysia’s AUM that stood at approximately RM 751 billion in the first half of 2017.

A fast-growing market

The Malaysian equity market is one of the fastest growing in Asia and among the advanced emerging markets. It also has the highest number of public listed companies (PLCs) in ASEAN with a total of 904 PLCs as at 31 December 2016.

The Malaysian equity market is well-supported by a large pool of domestic institutional players 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 30th June 2017, the total equity market capitalisation for Malaysia stood at RM1.8 trillion (approximately US$430 billion)*. In 2016, the total equity market capitalisation stood at RM 1.70 trillion and the highest amount of funds raised from secondary markets in ASEAN was in Malaysia with RM 11.8 billion (approximately US$2.81 trillion)*.

Source: Securities Commission Malaysia

Malaysia has an 8.24% weightage on the MSCI Asia Pacific Risk Weighted Index, and 11.09% ex-Japan – the highest among ASEAN countries –, signifying its importance in the region.

Source: MSCI

Source: MSCI

Malaysia’s equity market has seen success in raising long-term financing for small cap companies. According to the MSCI Malaysia Small Cap Index, it is reflected by strong performances in real estate, industrials, information technology (IT) and has also made an impact on other sectors as well. Therefore, Malaysia is well poised to serve as a regional platform for growth for many small and mid-cap companies.

Source: MSCI

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.

In 2016, Securities Commission Malaysia (SC) approved six IPOs and equity fundraising is expected to be higher in 2017, with approximately RM 7 billion – RM 9 billion expected to be raised via IPOs.

Source: MSCI

The Malaysian equity markets have strong safeguards for foreign investors, especially in terms of protection for minority investors, where it was ranked third by the World Bank in 2017. The industry regulator, 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. 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.

Disclaimer: Dollar quoted was valued at RM4.20=US$1.00 on 11th September 2017.

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