Capital market initiatives will boost liquidity and trades


Malaysia’s latest announcement to boost the local capital market is expected to enhance liquidity and draw more players, but questions arise whether the Malaysia-Singapore cross-border trade link will excite investments from the city state.

In an unexpected move, the government announced a slew of initiatives including the opening up of intraday short selling to all investors, a threeyear stamp duty waiver for trades involving small- and mid-cap stocks and to allow cross-border trading between Malaysia’s and Singapore’s stock exchanges.

Affin Hwang Investment Bank Bhd senior director and head of equity capital markets Arvin Chia said the opening up of intraday short selling would have the largest impact to the domestic market as it would allow for two-way trading.

“Most major global markets are able to trade two ways. Allowing short selling will probably introduce more volatility into the local market, but from a trading and liquidity perspective, this is positive. The goal is to improve liquidity,” he told The Malaysian Reserve (TMR).

He said whether investors would jump on the short-selling bandwagon depends on the ease of short selling.

The Securities Commission Malaysia (SC) has said it will regulate the activity, while the decision to allow all to short sell was due to strong interest from traders.

“As to how much short selling would affect the market — a very rough estimate — it could add between 15% and 20% more liquidity into the market over time.

“There will be a lag effect before people understand it better. So, it will take a couple of months before any impact is seen,” Chia said.

Prime Minister Datuk Seri Mohd Najib Razak announced that margin financing rules will be liberalised to further enhance the local stock market, with intraday short selling to be allowed to all investors.

The stamp-duty waiver for the buying and selling of small-and-mid cap stocks for a period of three year will come into effect in March this year.

Areca Capital Sdn Bhd CEO and ED Danny Wong Teck Meng said the stamp-duty waiver would not greatly impact the market, but it would encourage a greater retail participation, especially from smaller retail investors.

“Though the trades are smaller, the velocity will add up and create more liquidity in the market.

“The opening up of short selling is also expected to create more volume as it allows people to profit both ways, whether it’s a bull market or bear market,” he told TMR.

Najib, who is also the finance minister, announced the proposal of setting up of a trading link between Bursa Malaysia and the Singapore Exchange.

The link will allow investors from both sides to trade and settle shares listed on both bourses.

The corridor will provide investors with seamless access to each other’s markets with a combined market capitalisation of over US$1.2 trillion (RM4.7 trillion) and 1,600 public- listed companies.

“The trading corridor is a welcome collaboration which follows in the footsteps of similar links in Europe and China. Such a link will create velocity — volume and greater liquidity — which will encourage more participants in the market,” Wong said.

The new category of traders dubbed “trading specialists” who will trade on their own account, will boost liquidity.

“The special traders will allow market makers who can move along with the sentiment, creating more buyers and sellers and more trades,” Wong said.

“My belief is that the corridor will start with large counters as those will be familiar to both sides, with easily available information on the stocks. Smaller counters may not be as well-known and lacking in research material. Perhaps subsequently, small- and mid-caps will be included.”

The SC and the Monetary Authority of Singapore said they will be working together to form the trading link by year-end.

Both regulators will set up cross-border supervisory and enforcement arrangements, while working with the two exchanges to operationalise the link.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said the cross-border link would not go very far in generating fresh interest in Malaysia due to reluctance on the part of Singaporean investors.

“Malaysia was a big part of the game among Singaporeans before the Asian financial crisis, because Malaysian stocks were more interesting, with more diversity across the types of companies and industries.

“The Internet was also not so readily available then. So, people looked to the nearest country.

But now, many retail investors have sworn off Malaysia after the crisis, especially as connectivity allows one to open accounts across borders,” he told TMR.

Conversely, there is greater interest from Malaysians looking to invest in Singapore, Pong said, attributing this to the stable and stronger currency across the causeway.