FOREIGN portfolio funds tend to invest in companies with good environmental, social and governance (ESG) practices, and of substantial size with good earnings potential and growth prospects.
At Bursa Malaysia, considerable effort is placed on the strengthening of ESG practices and disclosures of listed companies, as well as to nurture sustainable growth.
The exchange is aware that earnings growth, stock liquidity and accessibility is of utmost importance to investors, especially foreign investors.
On earnings growth, the public listed company (PLC) transformation programme is aimed at steering corporate Malaysia to higher performance levels by providing best practice and data insights to support the growth narrative of all PLCs.
The exchange is looking at enhancing liquidity provider programmes; it had launched the Bursa Malaysia Incentive Scheme in March 2022, to address the lack of trading activity within the inactive and under-researched stock segments.
It works with research houses for coverage on these companies as well as carry out marketing activities that boost the corporate profile of participating companies.To further facilitate investor decision-making, the exchange is exploring the possibility of enhancing the availability, quality and comparability of ESG data by listed companies.
As a provider of market data, Bursa Malaysia is also looking at ways to operationalise the collation, aggregation and dissemination of ESG data to its stakeholders.
PLCs will be improving in their ESG practices and reporting; the Main Market and ACE Market listing requirements are put in place to strengthen board independence, quality and diversity.
Sustainability reporting requirements were recently enhanced to elevate sustainability practices and disclosures of listed issuers.
The overall sustainability reporting framework puts listed companies in a good position to adopt international reporting frameworks and standards.
These include the Global Reporting Initiative and the International Sustainability Standards Board.
Overall, the enhancements places our requirements on par with benchmarked international markets.
The enhanced sustainability reporting requirements for Main Market listed issuers will be implemented in a phased manner.This will begin with the disclosure of the common sustainability matters for financial year (FY) ending on or after Dec 31, 2023, and culminate with the Taskforce on Climate-Related Financial Disclosures-aligned disclosures for FY ending on or before Dec 31, 2025.
The exchange had also launched the investor relations (IR) and public relations incentive programmes aimed at improving the IR capabilities of less accessible corporates that are in demand.
This programme will leverage on the professional capabilities of enlisted agencies to set and improve IR standards of PLCs.Other initiatives lined up include inter-exchange collaborations such as the Bursa-Shenzhen and Asean exchanges collaboration to drive cross border investments, promote PLCs and foster supply chain cooperation.
The collaborations are important to support the internationalisation strategy to facilitate cooperation in terms of product and market development.
Besides the usual marketing and promotional programs, the exchange is currently focusing on the following core areas and initiatives to boost its competitiveness:> Strengthening its leadership in the Islamic capital market.
> Developing its sustainability agenda for the capital market.
The convergence of sustainability as well as responsible and syariah investing is expected to deepen Bursa Malaysia’s competitive edge and make its offerings highly relevant to investors around the globe.> Improving the quality of earnings of its PLCs via the PLC transformation programme.Foreign investors look for stability; a stable government with progressive and credible growth policies, as well as strong governance, will inspire confidence among foreign investors in general.
Malaysia has been making good progress in this regard, said Bursa Malaysia.
As at end-March, 2023, the forward price-earnings ratio of the benchmark FBM KLCI is at 13.1 times, one of the lowest in the region that ranges between 10.8 times and 15.5 times.
The Malaysian stockmarket is a considerably low beta market compared to its regional peers; a low beta implies that the volatility of Malaysia’s market is lower compared to other markets, which can be an attractive feature for foreign investors seeking a more stable market.
The FBM KLCI has an adjusted overridable beta of 0.38 times, as at the first quarter of 2023 – one of the lowest among regional indices which range from 0.36 times to 0.42 times, according to data from Bloomberg.
This also implies that Malaysia’s market is less volatile compared to other markets in the region, which can also be a key factor in attracting foreign investments.
Bursa Malaysia is confident of attracting foreign investors with its ongoing efforts to digitalize its services, liberalise its regulatory framework (where relevant), and widen its range of products and services.
The inflow of foreign funds is not considered destabilizing, nor is there evidence that they necessarily leave as soon as they scoop up big profits, said Bursa Malaysia.
Bursa Malaysia very much welcomes and wishes to attract more foreign inflows as diversity in investor participation can improve market breadth and depth, leading to increased liquidity and improved market efficiency.
Foreign investors bring fresh capital and serve as an external validation on the relative attractiveness of the market, which boosts investor confidence and potentially lead to increased market activity and higher returns.
Against much optimism, investors are reminded to tread with caution and deep study.
Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.
