Geoffrey Williams of the Malaysia University of Science and Technology said the stock market has been on a downward trend for almost a decade.
Liew Chee Yoong of the Center for Market Education said poor performance would continue, from a combination of the ringgit’s depreciation, scandals in corporate governance, and weak legal enforcement in the capital markets.
Bursa Malaysia recently experienced an eight-day losing streak up to June 14, during which the market index shed more than 100 points or 6.9% and then fluctuated before closing just above 1,455 points on Friday.
Williams said investors would continue to look elsewhere as other regional markets with massive customer bases have greater potential for strong growth.
“Even with a good economic performance, Malaysia cannot match the market size, profit options and growth of countries such as Indonesia, Vietnam and the Philippines.
“It’s often difficult for foreign investors to make significant investments in Malaysian listed companies because they are too small and the shares are closely held or not liquid,” he told FMT.
He said foreign investors look for investment funds across multiple countries but Malaysia’s licensing laws make it difficult to establish and manage such funds effectively.
Liew, who is also an assistant professor at UCSI University, attributed the inconsistent stock market performance to investors shifting their funds from stocks to other higher-yielding assets after Bank Negara Malaysia recently increased interest rates.
He said the ringgit’s depreciation against foreign currencies also contributed to the poor performance, with local and foreign investors shifting their investments to financial markets with stronger currencies.
He said there were no “quick fixes” for Malaysia’s stock market performance but noted there were several factors within the government’s control that could be improved in the long term.
“The government should provide attractive subsidies and incentives to attract good quality domestic or foreign firms to invest in initial public offerings in Bursa,” he said. “Such incentives could include tax breaks and the reduction of red tape.”
Liew said economic development would be severely affected if the stock market continued to perform poorly over a long period, while Williams said the Malaysian stock market was at risk of becoming increasingly marginal for foreign investors.
“Investors and pension holders will suffer poor long-term returns below what they can get elsewhere, while local fund managers may have to resort to more active buying and selling to capture profits,” Williams said. “But this makes the equity market more volatile and risky.”