However, they also say the government should not assume this measure is the panacea that will lift Bursa Malaysia from its doldrums.

Bursa Malaysia and the Stock Exchange of Thailand (SET) are the two worst performing Asian indexes this year.

Sunway University business school economics professor Yeah Kim Leng said trading lots of smaller sizes encourages more investment and makes entry into stock investing easier and affordable for micro players.

“This enhances liquidity,” he told FMT Business.

However, it is a fallacy to think that people invest in stocks because they are cheap. If that were the case, hordes of investors would be snapping up penny stocks on Bursa Malaysia.

Yeah said that, ultimately, it should be the profitability and earnings of the publicly listed companies that makes the difference.

“It’s only when they do well that returns on investment will drive interest in stock market investing,” he said.

When comparing asset classes, he said, returns from equities should exceed that of property, mutual funds, or commodities.

“The stock market returns should be higher than other asset classes to be attractive for investors. Only then will the investor base expand.”

Bursa needs to be proactive

Yeah noted that typically with expensive counters, companies tend to undertake share splits into smaller denominations to encourage greater investor participation.

“It benefits shareholders as they get more shares, and shares with lower prices have more room to move up,” he said.

He said the challenge now is for Bursa Malaysia to identify well-run profitable companies to be listed so they can spread the benefits and returns to the investing public.

The Securities Commission Malaysia (SC) said last week it will soon announce details of reducing the current board lot size for trading on Bursa Malaysia, and enabling fractional share trading through stockbrokers.

SC chairman Awang Adek Hussin said the initiatives would make investments more affordable to investors, ensure accessibility, and help improve market vibrancy.

Another recent initiative to boost retail participation on the local bourses is the lowering of stamp duty for shares traded to 0.1% from 0.15% of the contract value, subject to a maximum cap of RM1,000 per contract.

In addition, the government has given the nod for automatic transfer for companies listed on the ACE Market to the Main Market, subject to meeting certain criteria.

The bigger picture

Penjana Kapital CEO Taufiq Iskandar said the move towards smaller share lots should not be a standalone initiative as it is part of the Madani economy growth policy blueprint.

“The recent announcement should be understood together with recent interventionist measures,” Taufiq said, adding that the government wants to set the necessary conditions and an enabling environment to achieve these targets.

“In essence, the government wants to encourage more private direct investment (both foreign direct investment and domestic direct investment) and portfolio investment, the latter through broadening and deepening our capital market,” he told FMT Business.

“Malaysia needs a well-functioning capital market that is internationally competitive so we can attract more investors’ participation to support the country’s capital and investment needs.”

He also advocates building a vibrant private equity market with ample venture capital to facilitate and speed up listing of fast-growing start-ups on Bursa Malaysia.

MIDF Amanah Investment Bank Bhd research head Imran Yusof said the government’s initiative may help increase the interest of retailers to invest as they can now afford stocks that were previously too expensive to own.

“We can see this in the US markets with fractional shares trading offered by financial services company Robinhood.

“However, we still need to see the details such as the trading platform, what type of stocks, etc,” he said.

Imran said this move will likely be positive for Bursa Malaysia as it will increase trading volumes.

“Higher trading volumes may increase volatility (which is good for trading) and lead to better price discovery. Nevertheless, we need to also understand the investors’ sentiment or willingness (to invest),” he said.