More important things than number of listings

A ROBUST stock market has always been a hallmark of a well functioning and diverse economy.

The capital market serves as an avenue for companies to both raise capital and also build their reputation and transparency which is critical in today’s well-oiled global markets.

Welcoming new listings has always been a feature for any stock market. The companies that populate our own bourse have long known that being listed on the stock market is a wealth effect both for themselves and the investors in those companies.

But is it?

Back in the day in the fledgling years of the then Kuala Lumpur Stock Exchange (Bursa Malaysia today), many of our blue chip companies flocked to the stock market.

Malaysia was booming and getting the likes of Telekom Malaysia Bhd and Tenaga Nasional Bhd listed was a feather in the cap for the local stock market.

After all, interest in Malaysian stocks was super high given the outsized weightage on the Morgan Stanley Capital International indices before the likes of China started to trim Malaysia’s importance on the global stage.

Fast forward to 2024, things seem bright. The FBM KLCI rose 12.9% in a year that saw 55 listings. A stock market that’s hot over a decade will surely draw in companies waiting to capitalise on the rising tide for equities.

As the number of listings crossed the half century mark from 32 in 2023, the breakdown was four for the LEAP market, 40 for the ACE Market and 11 for the Main Market.

With so many companies heading to the ACE Market, the interest from investors was also good.

According to Crowe Malaysia, a total of RM7.4bil was raised from IPOs in 2024 compared with RM3.6bil in 2023.

In terms of gains, it was 110% for the LEAP Market, 38% for the ACE Market and 29% for the Main Market.

The average turnover of stocks that were listed last year was RM18mil in the LEAP Market, RM122mil for the ACE Market and RM1.25bil for the Main Market.

In terms of profit after tax, it was RM2.8mil for LEAP Market stocks, RM13mil for ACE Market counters and RM80mil for the Main Market equities.

Bursa Malaysia expects to see 60 companies listed on the stock market in 2025.

The fervour for new listings has continued with RichTech rising 200% on listing day. That is a great windfall for investors.

But the main issue is whether the new listing, notwithstanding big gains from the initial public offerings, will actually serve the stock market well in the long run.

Singapore, in its recent budget, announced moves to boost its stock market after there was a rebound last year.

Like the case in Malaysia, what was the main reason for that rebound in the stock market?

Stocks on the Straits Times Index rose 16% to a 17-year high in 2024. There were, however, only four new listings, indicating that investors were more focused on existing counters that offer better value for performance and growth than the new listings.

Although the case was different here with the new listings on average outperforming the FBM KLCI, one really has to look at whether the longer term financial performance of the newly-listed stocks is better than that of the established stalwarts on Bursa Malaysia.

Although there are some solar companies that can shake up some interest, a cursory look will suggest that the incumbents are doing better financially and the question is whether the new entrants will join the ranks of the blue chips that have carried the stock market forward.

Among the notable listings that stand a chance of doing that are 99 Speedmart Retail Holdings Bhd and Johor Plantations Group Bhd but money will surely be on the old and tested counters of the FBM KLCI.

With the stock exchange focusing on soft issues like ESG and hot button topics of climate change compliance to spur investor interest, the focus should be on seeing what the blue chips are doing to move up the curve to drive profitability and performance rather than just emitting less carbon.

New listings are really not going to move the needle much compared with the early and mid 1990s when the low hanging fruit of Malaysia were tapped to drive interest in the stock market.

If there are no companies that are going to become the Magnificent Seven of Bursa Malaysia, then the game of patting ourselves on the back for seeing a flood of listings is just good for investment bankers and their bonuses rather than driving long-term ownership in companies that will make a big difference in Malaysia.