KUALA LUMPUR, 21 March 2006 — Malaysia’s stock-exchange chief urged the government and the country’s wealthy families on Monday to sell more of their businesses into public hands to help boost liquidity and foreign interest in local stocks.
Malaysia is Asia’s worst-performing market outside China over the past 12 months and is one of the region’s shallowest, turning over just a quarter of its market capitalization last year.
“We know that the government has said that they are going to sell down but we, like the rest of the market, are just waiting for that to happen,” Chief Executive Yusli Mohamed Yusoff told Reuters in an interview at his Bursa Malaysia office. “All we can do from our end is to explain to them why Malaysia needs to have more liquid stocks.”
The government controls or partly owns companies that account for about a third of the Malaysian market, and large family shareholdings influence a large chunk of the rest.
The market is worth about 730 billion ringgit ($197 billion) and has almost 1,000 companies, but it is so shallow that major foreign investors can often find it difficult to buy and sell a stock without moving the share price against its favor.
Lack of liquidity is also nudging Malaysian firms out of key regional indexes. This month, index provider FTSE dropped 10 Malaysian firms from its indexes after reviewing Asia Pacific stocks, excluding Japan, in the wake of tighter liquidity rules. “If we don’t do something about it, more and more of our stocks are going to be dropping off from the index,” Yusli said.
Yusli took aim at many of the market’s biggest stocks, without naming them. The big blue chips are often state-invested but do not routinely feature among heaviest-traded stocks.
For example, since March 13, more shares have traded on average each day in a chicken farmer worth $80 million, Leong Hup, than in state-linked power company Tenaga Nasional Bhd worth $9 billion, according to Reuters data.
Most big companies fail to turn over even a quarter of their market capitalization every year, Yusli said, adding: “They are dragging down the rest of the market.
“Until and unless the players understand and attach importance to this matter, Malaysia risks getting more and more of our stocks, especially the larger ones, being marginalized.”
Bursa also wants Malaysia to introduce short selling to boost liquidity, but the government is wary, and the exchange’s plan to set up a trading link to the Singapore Exchange has been delayed by problems with a related IT project.