KUALA LUMPUR (Sept 9): Remember how the Malaysian equity market was one of the world's hottest, when it outperformed global peers with daily trading volume ballooning to new records?

No, this was not about the go-go years that the baby boomers and Gen-X had in the 1990s before the onset of the Asian Financial Crisis.

The record high trading volume and turnover happened just slightly more than a year ago when retail investors, of whom many were young first timers, flocked to the stock market.

The vibrant trading activities then sparked hope of a rejuvenation of Bursa Malaysia which had seen subdued participation, especially retail interest, in the past two decades. Rubber glove mania, semiconductor boom and the penny stock fever drove investors to pouring money into equities.

Unfortunately the wave of investor interest moved past us as quickly as it came.

Having surged nine-fold past 27 billion shares in August last year, daily trading volume in Bursa Malaysia retreated to below five billion shares, not far off pre-Covid levels of around three billion shares.

The FBM KLCI traded largely sideways in 2021, trailing behind regional peers that are enjoying the rally amid the vaccine-induced economic recovery.

Foreign investors are also en route for their fourth consecutive year of outflow from local equities, with net selling of RM5 billion to-date.

It begs the question why the Malaysian equity market is unable to retain investor interests? Are there any deeper structural issues underneath the obvious problems, such as the current headwinds of the health crisis that have resulted in economic uncertainties, and the evolving political landscape, on the surface?

Where other regional markets from Indonesia to India and South Korea are experiencing a surge in big initial public offerings (IPOs) as there is ample liquidity chasing for investments in high-growth companies in the digital economy, it is apparent that Malaysia is missing out.

Even after including the upcoming IGB commercial REIT listing, Malaysia's total IPOs in the Main Market and ACE Market to raise RM2.67 billion (about US$640 million) in January to September 2021 are dwarfed by the US$8.8 billion raised in India's IPO in January to August.

Companies with roots in Malaysia themselves are looking outwards, from AirAsia Group Bhd's digital arm, to the online used car platform Carsome who just recently fetched a valuation of US$1.75 billion and is now seeking to list in the US.

It is worth noting that the largest IPO on Bursa in four years is a traditional bricks-and-mortar business of home improvement retailer, MR DIY Group (M) Bhd.

Prior to that, petrochemical group Lotte Chemical Titan Holding Bhd was another mega public offering. Its journey to be listed on Bursa was rather bumpy.

A fund manager with an international firm pointed to higher liquidity and clearer policies overseas at this point in time.

"If you have a multinational corporation, why would you want to be listed in Malaysia? Might as well go overseas where there is better market access and policy certainty, and where more foreigners are also investing."

"It's about fetching the right valuation," said HLIB Research head of retail research Ng Jun Sheng. "The policy uncertainties are also glaring as evidenced in the slowdown of our foreign inflow in recent years."

Notably, Malaysia's weightage in the MSCI Emerging Market Index of 1.36% is now lower than the 1.73% fetched by our neighbour Thailand, and way off 11.66% for India.

In the past, investors have explored the Malaysian market for exposure in sectors like plantation and oil and gas (O&G), as not many stock exchanges had these types of companies listed.

But the circumstances have changed. Despite posting impressive earnings growth on the back of strong edible oil prices this year, Malaysian plantation counters have failed to whet investors' appetite.

Fund managers, who have strict compliance with environmental, social and governance (ESG) mandates, will not look at plantation stocks and O&G companies. As a result, this will also affect those who do not need to comply with ESG as they would not pay a hefty premium for this breed of stocks given the shrinking pool of investors.

"We are still among the best in the world when it comes to plantation stocks, but the inherent ESG issues, such as labour practices and sustainable planting, continue to hinder institutional investor participation," concurred the fund manager.

"On top of that we have political uncertainties. That's a big thing," he said.

In the O&G sector, despite the steady recovery of the crude oil prices this year, the Bursa Malaysia Energy index remains among the worst performers across sectors. Investors shun O&G counters as they are largely still dependent on national oil firm Petroliam Nasional Bhd, which itself is managing its costs in the face of energy policy headwinds and rising demand for dividends to the government.

On top of that, fossil fuel-based businesses are at the risk of falling out of favour.

Whereas in the construction sector, "exciting growth stories like the mega contracts of old are limited nowadays", the fund manager said. This is given our new fiscal position and the prudence we must now exercise to get things in order including the sovereign ratings, he said.

Meanwhile, HLIB's Ng suggested that another reason investors are not too excited about the local market is that the average earnings per share of Malaysian-listed companies have been dropping over the years, while corporate earnings in other markets have been growing.

There is nothing wrong with having a large number of mature bricks-and-mortar businesses listed on Bursa as most of their products remain in demand in the current digital era.

Nonetheless, it is undeniable that there should be offerings from companies that are in the high growth era to keep the market vibrant.

To achieve this, it will need more than just the stock exchange.