What are foreign investors saying about us?
Yusli: I just returned from a road show overseas. Investors ask me what's different this time. This time, the approach is much more hands-on by the present administration.
We have steering committees covering the NKEAs and that kind of focus and hands-on approach will go a long way to ensure that a lot of issues we've had in the past about weak execution will be dealt with accordingly.
I told them that we should watch this space very closely over the next 12 months. If we deliver, then they (the investors) should take back what they have said. If we don't deliver, than fair enough.
I think Malaysia is on a very exciting path. There will be new things happening in the economy and those businesses that are related to these activities will certainly benefit. And for the capital market, you're going to see a lot of activities for fund-raising. To me, these things will create momentum and that will lead on to better things.
Malaysia is never going to be the biggest economy in Asia. We're never going to compete with Hong Kong or China but we do have some very good quality businesses and we're all very diversified.
We should be in for some interesting times.
What about the point that most foreign investors do not follow the FTSE as much as they do the MSCI?
Yusli: I don't think anyone expects large inflow of funds based on the upgrade. To us, it's more an acknowledgment of past efforts ...it's well overdue.
We know that a lot of investors follow the MSCI Index. Whether we are emerging or advanced on the MSCI Index, it boils down to our weightage which is essentially how much market capitalisation our companies will capture on this index.
A big challenge we face is the free float of some of the companies. Also, the MSCI will attach a foreign application factor such as how much of the shares in a company are available to foreign investors.
MSCI and FTSE are looking at all of this purely from the point of the foreign investor and so, all they are interested in is, how much shares in a company is available to foreign investors.
We have a very interesting case, which has been highlighted all the way to the top. Public Bank Bhd's foreign shareholding is 30% of their market cap. MSCI will only take 30% of Public Bank into their index. Can you imagine that more than two thirds of Public Bank will not be included in the Index which means an excess of RM20bil? If you do that, it would reduce our weightage.
So the challenge is how to increase this. We need to engage with the Government (linked-funds) to sell down more shares so that the weightage of GLCs can go up, and in the case of Public Bank, to resolve the 30% issue.
The big challenge for Malaysia is that other countries like China and India are adding new companies and adding market cap to their index almost everyday. They are at a development stage where a lot of their companies are still not listed, whereas in Malaysia many of our companies are already listed.
Ranjit: Issues such as free float and liquidity are being worked on by the SC and Bursa, but it's not easy given certain structural issues. One of these is the need to develop the buy side.
A lot of money has been mobilised in this country which have been concentrated in specific institutions. The strengths of these institutions have actually been able to drive some of the economic growth of the country. However, we now need to broaden this base and enhance demand for products and investments.
We need to start developing other institutions so that there is a spread of players out there, competing with each other to show better returns and contributing towards more active trading and demand for yield-enhancing products.
You cannot rely entirely on foreigners to develop the market. We need to develop the domestic investor base both institutional and retail. We must aggressively attract higher retail participation to create greater vibrancy and liquidity in the market.
The size of the Malaysian market in 2000 was around RM700bil. Today, it stands at RM1.7 trillion.
Ten years ago, we had a small debt market. Today, our debt market is Asia's third largest.
Our Islamic market is recognised as a global leader. Malaysia accounts for 62% of the global sukuk market and we have the largest number of Shariah compliant unit trusts in the world.
Our challenge is now to leverage on these strengths to drive growth of the capital market.
While there are issues to be addressed, we need to view the glass as half full because significant strides have been made.
The Capital Market Masterplan introduced in 2001 is now on its final year of completion with some 95% of the recommendations implemented. That's proof that Malaysia can implement and not just plan.
Will there be challenges? Of course there will. Have we got it all sorted out? Of course, we haven't. Are there structural issues? Of course there are. But I think we're on the right track and we must collectively support the plans.
It cannot just be something handled by the Government and policy-makers alone but a collective effort by all including industry and the market players.
Using Datuk Ranjit's glass-half-full approach, in the efforts to move Malaysia up the ladder, what is working in our favour?
Haizan: We are at this juncture where there is some form of public partnership such as between Sunrise Bhd and UEM Land Bhd. But these things are happening too slowly...
As a broker, especially one that's based here, we are optimistic because of all the efforts. Malaysia is at a juncture where if it doesn't transform, we're going to have problems.
Shan, what are our strengths?
Shan: If you look at some individual companies in Malaysia, they are world class. The foreign ownership of some companies, such as AirAsia, the glove manufacturers and plantation companies are over 40%, which is a validation that investors will invest if we have very good companies.
Unfortunately, for bigger cap companies like the GLCs, the foreign ownership is not very high. One of the biggest problems is that the GLCs are so tightly held by local institutions.
Tenaga Nasional Bhd is another perfect case of a company that is well-liked by investors. In the early part of this year, coal prices and the currency were working in its favour of the company, but the lack of clarity on the tariff is an issue. Many GLCs have social agendas that make it difficult for investors to invest.
Ranjit made an important point that the domestic buy-side has to increase in terms of the size. If you look at China, it's a perfect example.
A lot of it is retail participation. The market is so vibrant because the regulators allow for day traders. When you create this vibrancy, foreigners will come in. When there's money to be made, they will come in.
Unfortunately, we don't have that vibrancy.
Amirsham: The Government has been pushing hard for institutions like the EPF to diversify their investments. EPF needs to go beyond just the domestic equity market.
When the Government comes up with these economic reforms, how much is investor perception a factor in making these plans?
Amirsham: It has to meet domestic needs and expectations because they are the voters.
In many ways, we have to benchmark ourselves against international standards, and this includes the MSCI, FTSE, the World Bank and Institute of Management Development.
The reform has to be ongoing to ensure that we continue to meet the growing competition that every country in the world is facing today.
Today for Malaysia, the emergence of larger economies such as China or India is a big challenge. If we cannot transform ourselves to compete with these larger economies than investments will not flow here.
Your final remarks, please.
Amirsham: On the issue about implementation, I have personally seen changes being made in the last two years.
There have been various mechanisms that the Government has introduced to ensure that various agencies are actually doing it. The creation of PEMANDU is actually one of the best things that we have seen.
There's also constant external monitoring of our performance, whether it's the World Bank or IMD. It creates a kind of push and urgency to continuously improve ourselves and make progress.
Shan: Even though policies are in place, there is still scepticism. With the new ETP and frameworks as well as implementation time table in place, if the Government makes that work, it will be very positive for Malaysia.
Haizan: Malaysia has been at this economic crossroads and the Government has recognised that to maintain our competitiveness, Malaysia's got to change.
Personally, I'm excited about the ETP. It has created some buzz. If you look at the last two months, the market has picked up quite significantly.
But going into 2011, plans are just plans. Clearly implementation and execution is going to be key.
Yusli: If we're able to execute the major initiatives that have been outlined and if the private sector rises up to the challenge the Government has said it wants 90% of the funding to come from the private sector and if the private sector does raise that funding then of course, our markets will be tapped.
The macro numbers in Malaysia are very positive. Whatever you say about our execution or politics, you cannot take away the fact that our macro economic fundamentals are very strong.
We may not be the best, but we're certainly close to being up there.
If we can get some incentives moving, we're starting off on a very strong platform. We are in the right place in the world right now. We're sandwiched between two economic giants.
The challenge is if money (from investors) does come into emerging markets, how long is it going to stay?
The ball is truly in our court.
Ranjit: The capital market's growth in achieving advanced emerging market status is going to be ultimately dependent on where the economy goes. So it's in everybody's interest to ensure that what has been put forward in the NEM and ETP programmes are achieved.
There are some key things that we need to do. We need to enable innovation and diversity. There needs to be fewer hurdles for businesses to thrive and drive economic growth.
As that process takes place, you will begin to find that there are natural strengths and advantages for businesses to develop niche segments, which ultimately will make it very attractive for investors and investments.
We need to move from being a developer to being a facilitator and enabler of this change. This is very critical as we move forward.
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