This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

A surge in trading interest in 2020, particularly among retail investors, propelled Bursa Malaysia Bhd towards its best earnings showing since its listing in 2005.

The peak performance that year, followed by lower but decent earnings in the next two years, helped the stock market operator clinch, for the third consecutive year, The Edge Billion Ringgit Club award for highest return on equity (ROE) over three years in the financial services sector for the category below RM10 billion market capitalisation.

Bursa Malaysia’s net profit in the financial year ended Dec 31, 2020 (FY2020) more than doubled to RM377.75 million from RM185.86 million in FY2019.

That year, the average daily trading volume for equities rose to an all-time high of 7.32 billion shares compared with 2.51 billion in 2019, even as the average daily trading value reached new heights at RM4.21 billion compared with RM1.93 billion before.

Retail investors, many of whom turned to stock market trading while homebound during the Covid-19 lockdowns, helped keep trading volumes buoyant that year.

However, in 2021 and 2020, amid geopolitical tensions and other headwinds like inflationary pressures and monetary policy tightening, the average daily trading volume on the local bourse fell to 5.71 million and 2.8 million shares respectively, while the average daily trading value declined to RM3.54 billion and RM2.07 billion.

Trading velocity, which jumped to 64% in 2020 compared with 28% in the previous year, has since come down to 49% in FY2021 and 30% in FY2022.

As a result, Bursa Malaysia’s net profit eased to RM355.24 million in FY2021, before falling further to RM226.57 million in FY2022. Its ROE came in at 45.5% in FY2020, 41.4% in FY2021 and 28.3% in FY2022, giving it an adjusted weighted ROE over three years of 35.6%, the highest among its peers in the same category.

Going forward, analysts reckon Bursa Malaysia will have a difficult time stimulating tepid markets.

“We reckon that the average daily trading value of securities may continue to be slow as participation [has not picked] up meaningfully despite a more stable domestic political landscape, better economic performance and the reopening of China’s borders. That said, the traction from recent initial public offerings could continue to fuel retailers’ interest, with Bursa Malaysia indicating a pipeline of 39 IPOs this year,” says Kenanga Research in an Aug 1 report.

Adding to the current macroeconomic headwinds is the Israel-Hamas war, which erupted on the weekend of Oct 7, that is impacting global — including Malaysian — markets even as oil prices are being driven up.

In an Oct 9 report, Kenanga Research says it is keeping its FBM KLCI year-end target of 1,520 points for now as the war is still a developing situation. The benchmark index closed at 1,435.65 points on Oct 24, down 4% year to date.

As at 1HFY2023, Bursa Malaysia’s net profit came in at RM132.42 million, up 3.9% year on year, mainly because of an unexpected reversal of the provision for sales and service tax, estimated by analysts at about RM28 million. Excluding the reversal of SST provision, its net profit would have declined 18.1%. It nevertheless announced an interim dividend of 15 sen a share.

Investors like the stock for its dividends. Bursa Malaysia has rewarded shareholders with a special dividend in three out of the last six years, that is in FY2017, FY2018 and FY2020. Shareholders received a dividend per share of 51 sen in FY2020 (of which eight sen was a special dividend), 41 sen in FY2021 and 26.5 sen in FY2022.

At the time of writing on Oct 27, Bloomberg data showed five analysts having a “buy” call on the stock versus eight with a “hold” and three saying “sell”, with the 12-month consensus target price being RM6.79. The stock closed at RM6.65 that day, giving the company a market capitalisation of RM5.4 billion.

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