SINGAPORE, March 12 (UPI) -- The Malaysian government has announced yet again new steps to spur its capital market. Given the current geopolitical uncertainties and the country's near-term economic outlook, the measures are unlikely to re-ignite foreign investors' interest in the local stock market any time soon. However, the measures will have an impact over the long term by cutting down red tape and increasing efficiencies in the marketplace.
"While the measures are a positive step for the stock market in the long term, investors' immediate focus remains on the external environment, in particular the U.S.-Iraq war front," said Jimmy Koh, head of treasury research at United Overseas Bank. "The upcoming fiscal stimulus package will also be closely anticipated to see whether there will be more goodies, in the form of a sweeping tax cut for example for companies," he added.
Despite the economic recovery since the 1997 Asian financial crisis, the Kuala Lumpur stock exchange has continued to languish. Last year, the main index fell 7.2 percent.
On Tuesday, the government announced at set of 10 measures to reduce transaction costs and improve market liquidity. "Uncertainties that have characterized the global and regional market environment over the past few months have had an impact on our market," Acting Prime Minister Datuk Seri Abdullah Ahmad Badawi said. "These measures are aimed at ensuring the continued growth of the economy and an efficient resilient and competitive capital market."
These included a $52.6 cap per contract on stamp duties -- which will cost the government $15.8 million a year in lost revenues -- and the standardization of board lots into 100 shares by June, which should enhance liquidity and attract retail investors.
To encourage listing of companies, the processing time for initial public offerings will be reduced from the current 6-8 months to 3 months; new listings of companies with a $65 million market cap and $2.1 million profit for the previous financial year will be exempted from three to 5-year profit record requirement. The time frame of moratorium on the sale of promoters' shareholdings for all new IPO and reverse take-overs will also be reduced to one year from the current period four years. All of these measures should make it easier for companies to list on the KLSE.
In addition, the government will cut red tape, allowing companies that require corporate proposal approvals to go directly to the Securities Commission, rather than seek approvals from both the securities panel and the Foreign Investment Committee.
Pye-Sen Tan, an analyst at JP Morgan, noted the most interesting feature in the 10-point announcement was the suggestive statement that the government will "facilitate" mergers of "government linked companies within common sectors, with the objective of increasing the presence of large premier companies on the stock exchange".
Analysts believe the move will not only spur merger and acquisition activities, but also create bigger and more attractive companies for investors, enhancing liquidity on the stock exchange. Of the top 100 stocks listed on the exchange, there are less than 20 with a market caps exceeding $1 billion. "There has been a lot of complaints that the companies listed on the KLSE are not big enough for investors to make worthwhile investments," Abdullah noted. Performance-related pay and share-option schemes will also be established by government-linked companies.
Mergers are most likely in the banking and plantation sector, with the most obvious tie-ups being Golden Hope Plantations and Kumpulan Guthrie in the plantations sector.
In the banking sector a merger between Maybank and Commerce Asset would also make sense. Maybank could also acquire Khazanah's 30-percent stake in RHB Bank, which is controlled by the Sarawak state government, and the Armed Forces Fund's stake in Affin Holdings. A merger between these four banks would create a bank with nearly $79 billion in assets, which would dwarf the next largest bank, Public Bank, that currently has assets of $12 billion, Tan said.
The latest set of measures came two months after the government launched a $2.63 billion ValueCap Fund to invest in Malaysian government-linked firms it sees as undervalued. In the last two months, ValueCap, which is not allowed to own more than 5 percent in any given company, has used 10 percent of its funds. Thought it has not propped the market it has helped cushion the fall, which has been less significant in Malaysia than in other countries in the region.
Yet, ValueCap has strong detractors, as some investors view it as an attempt to manipulate the stock market, supporting ailing or well-connected firms.
For the time being, most investors believe little can be done to prop up the Malaysian stock market, which is suffering along the rest of the region of the uncertainties about the war in Iraq. There are especially concerned about the effect it will have on the economic recovery, as Malaysia is very dependent on exports.
Even then companies' generally low free floats -- the shares available for trading -- have limited investor interest.
