Boosting liquidity will take time

  • Business
  • Wednesday, 03 Nov 2010

PETALING JAYA: The plan to improve the local stock market’s scale and liquidity will not see immediate results as the Government’s process of selling down its stakes in government-linked companies (GLCs) and attracting foreign investors to pick up local stocks will take time, according to fund managers and analysts.

“Market liquidity can basically come in two forms – through retail investors, which tends to be more speculative in nature, and through institutional investors that invest in blue-chip stocks. The latter option is more suitable in creating a sustainable market,” Fortress Capital Asset Management Sdn Bhd chief executive officer Thomas Yong told StarBiz.

MIDF Amanah Asset Management Bhd chief executive officer and chief investment officer Scott Lim said attracting foreigners into the local market went beyond having adequate supply or the right valuation.

“Foreigners are not coming into the market not because there is no supply or our valuation. It’s other considerations like the economic structure, and how the proposed economic model will work,” he said.

Yong said the listing of privately-held GLCs, such as Petroliam Nasional Bhd’s (Petronas) units Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) and Petronas Chemicals Group Bhd (PCG), was the step in the right direction to boost market liquidity.

While some might wonder why GLCs continued to hold large stakes in these newly-listed units as seen with Petronas holding a 69% stake in PCG and offering the rest for sale under the initial public offering (IPO) exercise, Yong said such decisions were based on overall investor sentiment.

“For instance, the Petronas group will be able to gauge from the investor roadshows on how much to sell. They will not want a situation to arise where there is too much supply and a lack of demand,” he explained.

The listing of these blue-chip companies also see pension funds such as the Employees Provident Fund (EPF) and Kumpulan Wang Persaraan (KWAP) taking up a substantial stake in these companies. PCG’s two cornerstone investors, EPF and KWAP, will take up 445 million shares, or 18%, of the 2.48 billion shares offered under its IPO.

Despite pension funds holding substantial stakes, Lim said market liquidity would exist if investors were looking to buy and sell at the right price.

Blue-chip companies were also offering a smaller retail portion under their IPOs, as seen with PCG and last year’s listing of Maxis Bhd, as these companies found it easier to sell shares in blocks to institutional investors, said a local bank-backed research head.

Another research head said the retail offering for such blue-chip stocks could be smaller due to the higher retail price set during the IPO.

Government-linked investment companies will also be selling down their stakes in listed companies to improve free float in the market. This can be seen with Khazanah Nasional Bhd paring down its stake in Tenaga Nasional Bhd, Malaysia Airports Holdings Bhd, PLUS Expressways Bhd and CIMB Group Holdings Bhd.

However, some industry observers said the sell-down to date had been insufficient.

Over the last nine years, the total market capitalisation of Bursa Malaysia had grown at a rate of 10% per annum, while stock markets in Indonesia and Singapore had grown at 24% and 17% respectively.

Malaysia’s MSCI Asia excluding Japan weighting has shrunk to only 3.2% from 6% in 2000, causing international fund managers to disregard Bursa.

To add to this, Bursa’s liquidity has lost its vibrancy, with its liquidity ranking in Asia has dropped from third in 1996 to 14th this year. There is also limited diversity in the market, be it in terms of products or currency.

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