Continued reforms will draw funds to Malaysia's stock market

PETALING JAYA: A commitment to reforms will draw more institutional funds to the local stock market, whose weightage on the MSCI Emerging Markets and MSCI All-Country Asia ex-Japan indices as of June has risen.

Malaysia's weightage on the MSCI Emerging Markets Index as of June stood at 3.14% from 2.9% in March while on the MSCI All-Country Asia ex-Japan Index, it stood at 4.4% from 4.1% in March.

While observers agreed that a higher weightage in regional indices would draw more institutional investors, especially foreign ones, to the local bourse, continued reforms such as further stake pare-downs in listed government-linked companies (GLCs) would be watched closely.

Although not new, reports of the pare-downs in listed GLCs would further increase the liquidity of the local market since these companies' stocks weighed heavily on the benchmark FBM KLCI.

For example, sovereign wealth fund Khazanah Nasional Bhd had trimmed its stake in Malaysia Airports Holdings Bhd several times in the past two years and would be completing the sale of a 32.2% stake in Pos Malaysia to DRB-HICOM soon.

Foreign shareholding in the local bourse was highest in 2007 when it reached 26.2% but fell in the following two years following the global financial and economic crisis.

TA Securities Holdings Bhd research head Kaladher Govindan said interest in the local bourse would pick up further as reforms to the economy continued apace.

“The raft of measures in recent times has been crafted to boost domestic demand especially private consumption in view of the external headwinds,” he told StarBiz.

Kaladher said these reforms, especially the stake pare-downs of GLCs, would help boost interest in the local stock market and interest would then spill over into the second-liners.

Last week, in the seventh update on the Economic Transformation Programme, Performance Management and Delivery Unit chief executive officer Datuk Seri Idris Jala announced six Strategic Reform Initiatives, among which was a diminishing government role in business, including divestment plans for GLCs.

According to Maybank Investment Bank Bhd research head Wong Chew Hann in a July 6 report, government-linked investment corporations (GLICs) held at least 35% of the top 100 public-listed companies by market value as at end-June and 39% of FBM KLCI-linked stocks.

These GLICs include Petroliam Nasional Bhd, the Employees Provident Fund, Khazanah and Permodalan Nasional Bhd.

“By market value, a 1 percentage-point reduction in GLICs' holding on the FBM KLCI stocks could lift trading liquidity by RM8.5bil,” she said.

Meanwhile, MIDF Amanah Asset Management Bhd chief executive officer Scott Lim said reforms would be closely watched.

He said while the changes to the FBM KLCI component stocks and the stake pare-downs had increased the market's free float, the weighting had not dramatically increased.

“Plans are always good but foreign investors are waiting for execution,” Lim said, adding that what the Government did to gather momentum and change was important.