Swift action needed for the local bourse to shine

CEO needs to attract some substantial major listings that could spark interest as the past couple of years were rather disappointing

pic by ARIF KARTONO

BURSA Malaysia Bhd’s CEO Datuk Muhamad Umar Swift (picture) certainly has a tough job at the helm of the local bourse operator.

While the company has a monopoly and is profitable, the exchange is currently facing a tough challenge in attracting sizeable new listings, as well as investors.

Recent listings have been by small companies that are mainly on the ACE Market and the Leading Entrepreneur Accelerator Platform (LEAP) Market — two markets that institutional investors like the Employees Provident Fund would generally avoid.

Muhamad Umar needs to attract some substantial major listings that could spark investors’ interest as the recent big listings in the past couple of years were rather disappointing, with share prices falling too soon after making their debuts.

Big companies like QSR Brands (M) Holdings Bhd have also opted to postpone its listings indefinitely due to poor market conditions.

Meanwhile, the government had also wanted to lower their stakes in major companies to raise cash, but the divestments have been rather slow and small.

New products like exchange-traded funds remain a niche investor market, while retail bond listings on the exchange have dried up.

Foreign companies’ listings have been non-existent after the bad experience local investors had with many of the China-based companies that were listed here.

On the other hand, day trading volumes have remained respectable, but concentrated more often in penny stocks rather than the bigger counters.

Muhamad Umar also has to contend with the fact that there are a small number of local companies opting to list on foreign exchanges like Hong Kong, for better visibility and greater access to the pool of investors.

In that sense, he needs to do something big to raise the profile of the local bourse on the international stage.

As it is, the rise in weightings of markets like China, India and Singapore in major global indices has pushed the local exchange down the ranks with many foreign investors treating the local market as more of an opportunistic asset class.

The move by the Chicago Mercantile Exchange Inc (CME) to sell its 25% stake in Bursa Malaysia Derivatives Bhd (BMD) back to Bursa Malaysia comes as rival exchanges seek to take a share of the palm oil derivative contracts trading market for themselves.

Bursa Malaysia has agreed to pay RM162 million cash to buy back the 25% stake, but the figure could rise further by the end of the year when the deal will be completed.

The purchase has been deemed expensive by some analysts, but it ensures that BMD-based contracts will remain trading on the derivatives exchange giant’s Globex platform till 2025.

The decade-long association with the CME has helped raise trading volumes of BMD contracts like the benchmark 30-stock FTSE Bursa Malaysia KLCI Futures (FKLI) and crude palm oil futures (FCPO) contract.

Muhamad Umar and his team at Bursa Malaysia has to ensure that BMD can broaden its contract offering and attract traders to trade on the contracts to ensure BMD does not remain dependent on the FCPO contract for volumes.

That said, the question of the exchange operator remaining profitable is not in doubt, but falling trading volumes is a concern for its shareholders and investors who see the counter as a dividend play.

For the first half of 2019 (1H19), Bursa Malaysia’s net profit contracted 23.6% year-on-year (YoY) to RM93.19 million as revenue fell 14% to RM250.49 million, owing to the lower contributions recognised from both the securities and derivatives businesses.

The derivatives market saw its trading revenue decreased 14.1% YoY to RM33.3 million on the lower number of contracts traded for the FCPO and FKLI, its filing stated.

Average daily contracts on the BMD were at 49,351 in 1H19 against the 54,794 contracts managed in the corresponding period last year. This brought total contracts traded 10.7% lower YoY at 5.87 million.

The derivatives business made up 13.9% of Bursa Malaysia’s total operating revenue in 1H19, while the securities market remained the largest contributor at 49.1% of total operating revenue.


Bhupinder Singh is the corporate desk editor of The Malaysian Reserve.