A BULL is an adult, uncastrated male bovine. A bull market is the condition in which share prices are rising or are expected to rise while a bear market is when prices decline, like they are doing now on Bursa Malaysia.

The bearish market can be attributed to factors such as inflation, foreign funds outflow, a weakened ringgit, and the uncertainty surrounding the imminent state elections. However, it is important to note that many counters are currently undervalued and present attractive investment opportunities.

Given the current economic indicators and positive forecasts from the government, it is puzzling why the government would choose to reduce stamp duty at this particular juncture as its impact would be minimal. Moreover, such a reduction is being implemented at the bottom of the market cycle, which is expected to move upwards. The rationale of increasing investor interest and market liquidity to attract domestic and foreign funds does not hold strong, given the existing restrictions in place.

With that said, let’s examine some key participants in the capital market ecosystem. Bursa Malaysia had set a target of 39 initial public offerings (IPOs) with a total market capitalisation of RM10 billion for 2023, with a particular focus on facilitating the entry of small and medium-sized companies into the market, especially the  (sponsor-driven) ACE market for business expansion.

Ideally, there should be an average of three IPOs per month. However, the number of offerings has been erratic, with some months seeing six or seven IPOs and others with none. This inconsistency is not a result of investors being spoiled for choices. The ACE Market fails to attract significant interest, and small players lack the financial resources to participate fully.

If one of the reasons behind the stamp duty reduction is to expedite the IPO process and reduce time-to-market, it is crucial to exercise caution. While it is important to attract angel investors, it is equally important to be aware of potential risks and ensure careful due diligence.

Bursa Malaysia has projected a daily trading value of RM2.3 to RM2.4 billion for 2023. However, it only chalked up RM1.65 billion per day last week. Even the 100-day average daily trading value of RM1.9 billion falls significantly below the forecast. It is hopeful that Bursa Malaysia will prioritise its ongoing public listed companies transformation programme to create a more attractive market with quality offerings for the benefit of all stakeholders, aligning with the bourse’s mission of “Creating Opportunities, Growing Value.”

The Malaysian market is relatively small, and some IPOs have been overvalued, resulting in significant losses for small investors. Warning signs were evident when applications through the Investment, Trade and Industry Ministry (Miti) were under-subscribed. It would be beneficial if Miti could be more transparent and assist potential investors in making informed decisions. In the case of under-subscription, it would be preferable for the funds to be returned to the placement agent or issuer to make necessary adjustments.

The six-month “moratorium” restriction on Miti applicants who fail to subscribe to the approved allocation does not contribute positively either. There are also issuers justifying high price-earnings ratio valuations compared to listed peers. In such cases, the principal adviser should be held accountable.

While the Securities Commission is not responsible for the merits of share issuances, significant changes are necessary to enhance the efficiency and international competitiveness of the capital market. Perhaps it is time to review the Malaysian code on corporate governance to create more value for a wider range of stakeholders and to educate potential investors.

Although shares are purchased at one’s own risk, regulators have a responsibility to ensure an orderly market. Attention should be given to “penny stocks” that have experienced substantial price drops over a prolonged period, as well as monitoring new offerings to ensure that the objectives, such as business expansion, are met and not merely for promoters to capitalise on the market.

In conclusion, it is imperative that we address the issues impacting the capital market and take proactive measures. There are numerous investors who are frustrated and disappointed, and it is crucial to rectify the situation for their benefit and the overall health of the capital market.

What say you… – July 12, 2023.

* Saleh Mohammed reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.