Market response to small-and mid-cap measures too early to call

The stamp duties for 361 counters on Bursa will be waived for a 3-year period, effective next month

By MARK RAO / Pic By ISMAIL CHE RUS

The stamp duty exemption for transactions of small-and mid-cap stocks on Bursa Malaysia will hold little sway with institutional investors looking for value and liquidity despite lowering the transaction costs.

Retirement Fund Inc (KWAP) CEO Datuk Wan Kamaruzaman Wan Ahmad said the stamp duty waivers will have “little impact” on KWAP as the trading costs borne by the pension fund are minimal.

“It is generally good for the market, but it will benefit us very little as we are already an active investor in small- and mid-cap stocks,” Wan Kamaruzaman told The Malaysian Reserve (TMR).

“Presently, 1% of our asset base is in small- and mid-cap counters, and we will adhere to this allocation going forward.”

KWAP — the second-biggest pension fund in the country — had an asset base amounting to RM140 billion in 2017.

Hence, as KWAP increases its asset base in coming years, the value of its investment in such counters will increase, although the allocation itself will be fixed at 1% of its portfolio.

This could likely be the case with other institutional investors as investing in blue-chip stocks has been the preferred strategy due to their sizeable market capitalisation and dividend offered.

Affin Hwang Investment Bank Bhd senior director and head of equity capital markets Arvin Chia said institutional investors have shown a strong interest in some small-cap initial public offerings (IPOs) in the past two years, especially those with sufficient liquidity to make the exit process easy.

Such counters have performed well upon listing, but the existing small-cap IPOs, however, have had a challenging time drawing institutional investors.

“It is a ‘chicken and egg’ scenario as these stocks are always bucketed as too illiquid, and their small market capitalisation positions them as not meaningful enough for bigger institutional investors to participate in,” he told TMR.

“The best growth does come from some of these stocks, so I think there’s interest from institutional investors, it is just a question of how they overcome this conundrum.”

Effective next month, the stamp duties on trades for 361 counters on Bursa Malaysia will be waived for a three-year period.

There are 978 companies listed on Bursa Malaysia today, and they collectively have a market capitalisation of RM1.96 trillion over last month.

The 361 companies qualified for the stamp duty waiver as they retained a market capitalisation of between RM200 million and RM2 billion at the end of 2017. Eligibility from 2019 onwards will be determined at the end of this year.

The lifting of the duties will be implemented shy of a year after the Mid and Small Cap Research Scheme was launched to elevate the profile of smalland mid-cap companies.

Launched in May last year, the two-year scheme requires the inaugural 100 eligible companies to be covered by at least two of the 22 licensed research houses under the initiative.

The research scheme targets to cover 300 listed companies in the near future.

While the move aims to provide investors with a greater research on small-and mid-cap stocks, it remains uncertain if it will translate into higher uptake of these counters, especially by big investors.