Around Asia's markets: Malaysia may allow buyers to sell short
Bloomberg News
February 15, 2005
Adeline Lee 

The Malaysian stock exchange, which is scheduled to sell shares in an initial public offering next month, may end a seven-year ban on short-selling to increase trading and attract international investors who bet on falling prices, the exchange's chief executive has said.
 
Bursa Malaysia, operator of the exchange that is 60 percent-owned by the government, is seeking regulatory approval for the change, the chief executive, Yusli Mohamed Yusoff, said in an interview last week. He declined to say whether short-selling may be approved this year.
 
"The more-sophisticated investors would like the ability" to short-sell, Yusli said. "It would give a boost to the market."
 
Malaysia banned short-selling in 1997 after its benchmark stock index plunged 52 percent during the Asian financial crisis. Mahathir bin Mohamad, prime minister at the time, blamed speculators for the drop in Malaysia's stocks and currency.
 
In short-selling, investors sell borrowed shares, hoping to buy them back at a lower price and pocket the difference. The practice can be a means to profit, but it can also be a way to hedge risks and help efficient pricing of securities, according to investors such as Winson Fong.
 
"It's a good way to provide liquidity and facilitate different types of investment styles and strategies," said Fong, a fund manager at SG Asset Management in Singapore. Most markets allow short-selling, and the Malaysian exchange has "little choice but to move up to international standards," he added.
 
Average daily trading on the Malaysian exchange dropped 32 percent last year even as the 100-member Kuala Lumpur Stock Exchange Composite index rose 14 percent. The benchmark has added 0.8 percent this year, while daily trading in January averaged 568 million shares, almost unchanged from a year earlier.
 
Bursa disclosed plans in December to sell 166 million shares to the public, or one-third of its enlarged share capital. Yusli, who has been chief executive since March, has said that the exchange wants to list by the end of this quarter. He declined to say how much the exchange hoped to raise.
 
Two government entities, Minister of Finance Inc. and Capital Market Development Fund, each own 30 percent of Bursa. Stock brokers collectively a own 30 percent and the country's approximately 6,000 stock traders hold 10 percent.
 
Removing the short-selling ban may help increase overseas ownership of Malaysian stocks, Yusli said.
 
About one-fifth of Malaysia's $193 billion stock-market capitalization is held by overseas investors, compared with two-fifths in South Korea, according to Bloomberg data.
 
Taiwan also plans to lift restrictions on short-selling in a bid to attract international funds, the island's financial regulator said in December. A fifth of Taiwan's $434 billion of stocks is held by overseas investors.
 
Even investors who do not short-sell can benefit from the practice by charging a fee to lend out their stock.
 
"Big pension funds such as Calpers don't buy and sell so often," said Fong at SG Asset Management. "They can lend out their shares to people who want to short-sell and that will increase their returns."
 
Calpers, as the California Public Employees' Retirement System is known, returned to Malaysia last year after withdrawing in 2002.
 
Still, short-selling could also have negative consequences, according to David Lum, an analyst with Daiwa Institute of Research Singapore. "It would improve liquidity, but it also increases the overall risk of the market," he said.
 
The change might also pose regulatory challenges for the Securities Commission in Malaysia.

Copyright © 2006 the International Herald Tribune