KUALA LUMPUR: Analysts say the local bourse may take some time to feel the impact of Bursa Malaysia Securities Bhd's rule change to allow more companies to short sell, but the impact will be a positive one on overall market ecosystem and trading activities.
Bursa Malaysia yesterday announced that it has reduced the daily market capitalisation requirement for companies allowed to short sell from RM500 million to RM200 million, effective June 12.
Malacca Securities Sdn Bhd head of research Loui Low said currently, there are 274 companies on Bursa Malaysia with market capitalisations above RM500 million. The lower threshold for daily market capitalisation however will expand the number of eligible companies to 496. "
While they may be eligible the candidates that will be allowed to short is dependant on the regulator.
"Currently in the regulated short selling list, Bursa allows about 215 companies, that will cover more than 75 per cent of the 274 stocks, if we expand it for the 496 companies, it will be around 350 to 390 companies being able to be shorted by then.
"This will allow more vibrancy in the markets going forward," he told the New Straits Times.
According to Low, over the past 15 days, the average total short traded value on Bursa Malaysia has been around RM60 million, with a short volume of approximately 23.5 million.
He noted that the full impact of the revised market capitalisation requirement on the stock market may take some time, as market players will need to borrow stocks for shorting.
Meanwhile, Tradeview Capital chief investment officer Nixon Wong said the improvement in trading volume can be gradual over time as investors take time to understand the mechanism of short selling.
He added that this move by Bursa is likely to enhance trading volume and stock liquidity, particularly for smaller companies within the specified market cap range.
He said this may be particularly seen within stocks related to consumer, industrial, and real estate sectors.
"The inclusion of these stocks will provide hedgers and speculators with a broader range of options, potentially resulting in increased fund inflows to the local bourse.
"Additionally, the securities borrowing and lending (SBL) market is expected to benefit from this development," he noted.
Wong said as Bursa does not permit naked short positions and requires securities to be available for borrowing to support short positions, long-only funds may be able to enhance portfolio yields via the earning of additional interest income by lending stocks from their portfolios.
As such, he said this directly contributes to the trading activities of all SBL desks in the market, creating further advantages.
According to Bursa Malaysia, careful selection of short selling candidates is made based on both quantitative and qualitative criteria to ensure there is sufficient liquidity, and the integrity of the market is maintained, when updating the list of Approved Securities. The list is reviewed approximately every six months.