Excerpts from interview with Bursa Malaysia CEO Datuk Tajuddin Atan.
Question: Perhaps we can start with the performance of the stock market over the past six years, in line with the rollout of the Economic Transformation Programme (ETP)? And zoom in on the past 12 months in relation to the current economic period?
Answer: From 2009 to 2015, the stock market benchmark index has grown by 91 per cent. The total market capitalisation of the market has grown 151 per cent.
Let me reaffirm what lies behind the numbers. The exchange is a proxy to the economy. If the economy performs well, the stock market will perform. How can the stock market perform? It is a constituent of many things.
One, the government policy. Second, the activation of the policy that translates into government-linked companies (GLCs) and the private sector.
What lies behind it? The ETP. In 2010, among the Asean economies, we were the only one with a thematic programme to drive the economy. In 2011/2012, they said in the newspapers that the problem with Malaysia was that we were long on announcements but short on deliveries. But that’s okay (because) thematically, we had a programme.
During that time, Singapore, Thailand and Philippines did not have a holistic story to be told. We told (ours) with the ETP, how it benefits our country. The private sector, whether they like it or not, cannot deny that they benefited from the programme.
This year, the difference is the noise is very loud. We need to address that. We need to communicate what are the facts on the table and what are the perceptions.
Question: On the exchange’s part, what have you done to communicate this message?
Answer: Our job is to come in and say these are the facts about our capital market. The only news that was the big attraction was the sell-out from foreign funds. What happened to the capital market? There was an outflow since November last year. People accumulated the amount that went out, which is, to date, RM24 billion. But let’s take a step back. From 2010 to this year, the amount of investable funds is RM34 billion. In that period, before the sell-out in November, we actually attracted RM34 billion. So, we were actually net RM10 billion. And, in the last three months, (the outflows) have stabilised.
Investable funds is the trading portion. There is another portion of foreign funds called strategic holding, which involves those who are holding equities for the long term. We have companies like Nestle, British American Tobacco and DiGi. Net-net, the total shares held by them have always remained stable.
What I’m trying to prove (is that) the number that moves is the trading portion which, to a certain extent, equates to the QE (Quantitative Easing programme by the United States and Europe, which attracted funds back to these markets). In terms of overall holding in the stock market, foreign shareholdings have maintained at that level. The drop was only 1.7 per cent from the highest in 2012.
Question: Is the Malaysian story the Asean story? What are the key messages that need to be said and reaffirmed?
Answer: The perception is that our market is not exciting. When the markets goes up, ours is not moving that fast. It is only because our stock market is low beta. But when the markets go down, we do not go down that fast. They all say in the same breath that our stock market is quite safe. Everybody believes that the fundamentals of our stock market are strong, that we produce good dividend yields. And it continues to be resilient as the economy grows. The results came from the companies which themselves are strong.
The Malaysian market is classified as “advanced emerging” under MSCI and FTSE classification. What’s at the back of a person’s mind is, if you take an emerging market return, you will most probably take emerging market risk. In our case, it is a misalignment, which is good. Our risk is equal to “developed” market risk because our corporate governance is one of the highest in the region, if not the world. (Malaysia was ranked 13th best regulated equities market in the world and 4th best for Financial Market Development by the World Economic Forum.)
So, from a risk/profile perspective, we should be classified as a “developed” market. But we cannot be classified as a “developed” market because our gross national income has not yet reached that classification. That’s the only classification that we do not have. That is why some of them will hold our market as a long portfolio.
The dividend yield is around 3.4 per cent, one of the highest in the region. I’m selling that. We have to establish the strength and diversity of Malaysia’s capital market. Diversity means we have a long list of menu items to choose from. For example, you favour banking? We have the top four in Asean that have gone across borders — CIMB, Maybank, Public Bank and, to a certain extent, RHB. You want plantation? You want oil and gas? We have many. On top of that, we have a niche, we have Islamic to sell. If that is not enough, we also have a world-benchmark derivative product called FCPO (futures in crude palm oil).
Question: Malaysia is considered one of the leaders in corporate governance. How does that help?
Answer: We had a really bad experience in 1997-1998, which no one speaks about but is in everybody’s mind. This is what China is experiencing now — transparency. Having overhauled corporate governance since 1997-1998, we made improvements and we built a strong corporate governance culture. Having done that, Bursa decided to push it to the next level. That’s where this year’s activities cover a lot of ramping up of sustainability. That’s why you see we have moved from governance to CSR (corporate social responsibility) and now sustainability. What you take from society, you give back, from an environmental, social and governance (ESG) perspective.
We hosted two international sustainability forums this year. We introduced FTSE4Good Index last year and we joined the stock exchange sustainability initiative. We signed that declaration so that, as an exchange, we should influence more than 900 companies. If we initiate, we hope 900 companies will follow. In fact, we were the first emerging market in the world and Asia’s first market to introduce the globally benchmarked FTSE4Good ESG Index.
The most defining moment is that we were recognised for this effort this year. As a company, Bursa Malaysia Bhd, we were among the top five out of more than 2,000 companies in Asean in corporate governance in Manila (at the inaugural Asean Corporate Governance Awards last month). That established us as a leader. It is not the award that we are more interested in because my role is as an influencer.
Bursa has two hats, as an exchange and a company. Being a public listed company, we need to be exemplary. By winning this award, we are an example of the true-blue corporate governance programme — the things that we do so that people follow. By being a role model, then we can influence.
We were ranked fourth in the world for financial market development, according to the World Economic Forum Competitiveness Report 2015. Eighth in the world for raising capital via equity and 13th in the world for well regulated equity market. That’s the value proposition.
Question: What keeps you awake at night?
Answer: People think that an exchange is something very simple. Do you know that we run the biggest, fastest matching engine in this country in terms of volume and speed? To me, it’s as if I’m running a technology company. I’m also running a surveillance company. I’m also running an operations company and a marketing entity.
The marketing part is how we actually promote regionally. We don’t expect people to come and say: “I want to buy Maybank (shares).” If there was a comparison between DBS and Maybank in an article and they said why they should buy DBS, I would go out viciously and say why they should buy Maybank instead.
Then there’s the trading part. This is the most interesting. My (technical) boys are here as early as 4am. By 7am, they have a health check on the system to make sure it is ready to trade. From 8.30am to 9am, the pre-opening takes place. The matching — the buying and selling — is about to go. By 9am, it starts.
Our system is so powerful that trades are matched in less than one second. Health checks are also done on the system in the afternoon and later in the evening. A zero (error) report is a good report for me. But if (the trading system) is down or it doesn’t start, all the positive things I’ve done in the past won’t matter. That’s it. And I actually have three trading systems — for equities, derivatives and Islamic.
Once all the systems are up, now comes the surveillance part. We must have a fair and orderly market for everybody. It cannot be cornered or controlled. We also need safeguards to control over-excitement in the market. And this is continuous throughout the whole day. Then comes the operation part, the clearing and depository. Those are all back-office.
Question: What is the ratio of retail and non-retail participation now?
Answer: For direct retail, 23 per cent year to date. Last year, it was 26 per cent. The number is not going to grow tremendously in terms of ratio and percentage because the bulk of my constituents are domestic institutions, the GLICs (government-linked investment companies). Then, there is a big portion from foreign and then, the third portion for retail. If you want to analyse retail and look at growth, the growth cannot be seen from the total number because it will be dwarfed by growth in domestic institutions and foreign participation. I am more concentrated on the number of accounts that we open, number of participation, never mind if it is small. That is the growth we are looking at.
Question: What are the numbers for CDS (central depository system) accounts?
Answer: Now it’s 2.47 million, I think. It’s lower than before because when I came on board, I cleaned up inactive accounts. It became smaller in number, but more importantly, are the active ones. Trade activity has shown growth, from 392 million trades in 2010 to 456 million trades today. So, there is a 17 per cent increase over the past six years.
Question: So Bursa is, essentially, still a professional market?
Answer: We have an ecosystem that makes our market quite stable. So I think for most markets, this is the space you want to be in. If you take the frontier markets like Vietnam and to a certain extent the Philippines, you’ll see market flows like we were back in the 80s. But, if you want to go back there without the proper ecosystem, then the true valuation will not be discovered. You will be trading, but the trading price is not finding true value. I think the ratio of speculation is higher.
The ecosystem that we have now is a more institutionalised environment that actually trades on fundamentals. And then we have foreign constituents that not only look at numbers, but also other factors of the exchange or investment — the likes of governance, sustainability and ethical funds. Having said that, we have a slightly different challenge because the retail part for a small country cannot, to a certain extent, challenge this. To make things worse for us, our retail portion has been institutionalised by many organisations — Permodalan Nasional Bhd, Tabung Haji and unit trusts.
We are dealing with a good problem. Retail activity has been institutionalised.
As we grow, this is the challenge that I want to throw to the investing public: now that you grow, and increase in sophistication, knowledge and experience, why don’t you invest yourself where you don’t have to pay the fees? By the same breath, these unit trust companies will say, “I shouldn’t charge so much before they run, because I cannot earn this amount of money if I don’t give you the return or dividend”. In the meantime, our investing public have to ask: “If you are not giving me a return and you charge me so much, why shouldn’t I go on my own?” That is the dilemma on the retail part, but the ecosystem is very important and we have grown in that particular area.
Question: How would you summarise what you have been doing this year?
Answer: I would call it demystifying perceptions. Obviously, these ruthless bunch of people will sell out in two seconds without thinking twice. When I meet them and call them, I tell them: “You can’t blame me. I was one of you before. I know.”
Having understood them, I now have this problem of how to deal with them. It’s payback.