Friday 22 March 2013

Bursa Malaysia - ASEAN Trading Link yet to see active participation


-  We re-iterate our BUY recommendation on Bursa Malaysia Bhd (Bursa), with an unchanged fair value of RM8.20/share, based on a PE of 26x FY13F earnings.

-  The Wall Street Journal (Asia Edition) yesterday reported that the ASEAN Trading Link, which went live six months ago, has gained little traction among cross-border traders.

-  We gather that Bursa’s foreign retail trading volume has remained at lackadaisical ~400mil shares/month, while average participation in the past 5 months was ~1% of total traded volume. The Singapore Stock Exchange and Stock Exchange of Thailand do not provide monthly figures.

-  The link, which provides a platform for retail investors to ride on the region’s growth opportunities, currently connects the Malaysia, Singapore and Thailand bourses. These three markets alone make up 70% of the ASEAN market capitalisation (USD1.6tril). We understand that the Philippines and both of Vietnam’s bourses could be joining the fray soon. No timeline has been set for the linkage of all 6 bourses in the region.

-  Despite incentives like capital-gains tax exemption for shares bought using the link and lower transaction costs, retail investors are still not keen, citing reasons which include:- (1) unfamiliarity with the foreign capital markets and its companies; (2) additional forex risk; and (3) lack of integration in the rules and regulations front. Interest to diversify is also low on their list as some investors believe the domestic market provides amply investment opportunities.

-  Our previous talks with management revealed that the alliance’s aim of improving the liquidity of the region’s capital markets by positioning ASEAN “as an investable asset class” is a mid- to long-term one. Its immediate goal is educating the investors through roadshows.

-  As stated in our previous reports, we are neutral on this tie-up as:- (1) any positive contribution from it will only be seen at the earliest in FY14/15, and (2) the impact will only be felt by retail investors, which account for a small portion of trading participation on Bursa (FY12: 23% vs. FY11: 26%).

-  Having said that, we are encouraged by Bursa’s bid to elevate its velocity (FY12: 28% vs. FY11: 33%) by increasing retail participation, which has been dwindling YoY since its peak in 2007 of 53%.

Source: AmeSecurities

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