KUALA LUMPUR, July 4 — Bursa Malaysia has been clamping down on speculative trading in recent weeks, dampening market sentiment despite the government’s moves to open up the economy and capital markets.
Securities houses have been subjected to intense scrutiny from regulators in recent weeks in what brokers whom The Malaysian Insider spoke to say has affected the overall market volume.
Prime Minister Datuk Seri Najib Razak announced this week wide-ranging reforms, including cutting the Bumiputera listing requirements and drastically trimming the role of the Foreign Investment Committee (FIC).
But the unprecedented changes appeared to have had little impact on the markets so far.
Traders have blamed the clampdown, as well as a global retreat, for the softer market.
The Kuala Lumpur Composite Index (KLCI) fell 6.02 points, or 0.558 per cent, to close at 1,072.69 yesterday. Total market volume was RM983.826 million.
The daily market volume has been hovering between a low of just over RM800 million and just above RM1 billion a day this week.
"They have been calling and asking for names of people who trade in speculative stock so brokers have pulled back the margins on speculators, causing speculative stocks to drop," one broker said yesterday.
Most Asian markets also posted declines yesterday after US stocks dropped more than 2 per cent overnight as a response to rising unemployment in the US.
The retreat in the global stock markets as well as the impending introduction of the new index is causing some uncertainty in Bursa Malaysia.
"The global market looks a bit weak and we were hoping for more support from local institutions," says OSK Research chief Chris Eng.
Local institutions however feel they can get better returns from the Singapore and Hong Kong markets and are focusing there instead of the Bursa.
Foreign funds are also staying away from Malaysia due to better valuations in Singapore and Indonesia.
"There is no core attraction to Malaysia," said the head of research of one foreign fund. "Companies in Singapore and Indonesia are more global in scale but offer cheaper valuations. Even if there is a rebound, Bursa tends to be a laggard."
Fund managers are also adopting a "wait and see" attitude to the new FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) which will replace the current benchmark KLCI on Monday.
"Not many people know what to expect and they are not subscribed to the FBM KLCI. So fund managers will wait and see what happens," said one broker.
The cost of subscribing to the FBM KLCI is also putting off some fund managers who feel it is prohibitive.
OSK's clients are benchmarking their fund performance against the FBM 100 which they feel more closely matches the KLCI in addition to having a better spread of sectors and not wanting to give too much weightage to the stocks in the FBM KLCI.
Eng feels investors should get ready to sell and focus on defensive stocks.
"Be ready to take profit," he said. "Since global markets are in retreat, we should be in retreat as well."
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