Bursa Malaysia on the right growth path

by **Cals** Wed 31 Jul 2013, 10:30

Bursa Malaysia on the right growth path
Business & Markets 2013
Written by AmResearch
Wednesday, 31 July 2013 10:16

[b style="line-height: 18px;"]BURSA MALAYSIA BHD [][/b]
(July 30, RM8.33)
Maintain buy at RM8.42 with a fair value of RM9: We reaffirm our “buy” recommendation on Bursa Malaysia with an unchanged fair value of RM9 a share as the exchange followed up on its solid first half of 2013 financial year (1HFY13) results (reported on July 18) with news of open interest in its derivatives market attaining record highs.

At the end of last week, Bursa Malaysia Derivatives (BMD) announced that open interest for all its 10 products achieved an all-time high of 251,994 contracts (+18% year-to-date [YTD]). In addition, crude palm oil futures (FCPO) — the most liquid CPO contract in the world and the global CPO price benchmark — hit a historical high of 201,209 contracts (+16% YTD). Previous peaks for all contracts and FCPO were reached in FY12 (214,065 and 173,649, respectively).

Open interest represents the total number of contracts at the end of each day that have not been closed out, exercised or allowed to expire. A large open interest bodes well for Bursa Malaysia as it means new money is flowing into the marketplace and more activity is taking place, which translate into greater liquidity.

Bursa Malaysia’s derivatives division has been growing from strength to strength since the formation of its partnership with CME Globex in 4QFY09. Besides the market’s depth, its breadth, as indicated by the rising trend of average daily contracts traded (ADC), has been widening, too. Year-on-year, Bursa’s 1HFY13 ADC was up 21% to 43,358 contracts (three-year compound annual growth rate of 19%). This puts the exchange closer to its ADC target of 50,000 contracts by end-FY13.

There was also news that Bursa Malaysia had recently raised the number of stocks available for restricted short selling (RSS) to 171 following the Securities Commission’s approval for the removal of the 100-stock cap as well as allowing for the fast entry of qualified large-capitalisation stocks.

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This move comes after RSS trades on Bursa Malaysia picked up in 2HFY12 to reach a high of RM293 million last month. In comparison, there were no RSS trades in March 2012.

We like this development as RSS has the ability to add depth and variety to the local bourse. Nonetheless, we do not believe the additions will significantly raise total trading volumes as only institutional investors are allowed to participate.

All in all, we conclude that Bursa Malaysia remains on the right growth path. Liberalisation measures introduced to create a more facilitative trading environment and the launch of more tradable alternatives (for example, ETBS) ensure that the exchange remains competitive and moves a step closer to being granted developed market status by index provider FTSE. — AmResearch, July 30

This article first appeared in The Edge Financial Daily, on July 31, 2013.