Remembering the CLOB Stock Trading Fiasco + The Edge Billion Ringgit Club (BRC) 2024 Award Winners
Back in August, Interactive Brokers announced they would allow trading in Malaysian stocks plus Malaysia (and the Malaysian stock market) has attracted attention as a China + One and data center destination (which has pushed up Malaysian utility, some property, etc. stocks…).
In addition, The Edge Malaysia (a local business paper) recently held The Edge Billion Ringgit Club (BRC) 2024 Awards (this was a few months ago) under categories such as growth in profit after tax over three years (30%), returns to shareholders over three years (20%), return on equity over three years (20%), etc. which this post will cover in more detail.
However, anyone thinking of investing in Malaysian stocks (or for that matter, in the country itself under programs such as the recently relaunched Malaysia My Second Home or MM2H program) needs to be aware of some not so far off history…
In the 1960s, (majority Chinese) Singapore and (majority Muslim or Bumiputera) Malaysia were part of a federation before the latter booted the former out. Then in January 1990, Malaysia (under Mahathir) delisted all dual-listed stocks from the Stock Exchange of Singapore (SES).
Since Malaysia had a much bigger and more diversified economy (and probably a bigger and more active stock exchange at the time), the CLOB (Central Limit Order Book) was established to allow Singaporeans to trade Malaysian stocks. And trade they did as the CLOB market was hot in the 1990s with some shares appreciating as much as 300-400%+.
However…
The Kuala Lumpur Stock Exchange (KLSE) had apparently strongly objected to the formation of CLOB from the start and had repeatedly warned investors about trading on an unrecognised market…
When the Asian Financial Crisis hit circa 1998, Mahathir implemented capital controls and abruptly froze the trading of all Malaysian shares on CLOB (claiming shares borrowed were being used to short the KLSE). This caused share prices and the Ringgit to collapse – leaving some 172,000 Singaporean investors or accounts holding CLOB shares worth an estimated RM17 billion (or US$4B+) hung out to dry…
In hind sight, Mahathir’s capital controls was the right policy (unlike what current Prime Minister Anwar, who was booted from the ruling party at around the same time and later repeatedly jailed on sodomy charges, had wanted to do which was more or less follow what the IMF said…). However, billions of CLOB shares or dollars worth of CLOB shares could not just be dumped onto the KLSE for trading as that would have caused it to crater even more.
A number of ideas were debated to solve this share overhang problem and to pay back Singaporean investors with a blatant rent seeking proposal being adopted. Effective Capital, a company owned by Singaporean businessman Akhbar Khan who was a close associate of then finance minister Tun Daim Zainuddin (who passed away a few weeks ago after being charged earlier this year under anti-corruption laws for “failing to declare 71 assets, including two investment accounts, six luxury vehicles, 24 properties and plots of land, and 38 companies…”) would buy out the frozen shares at substantial discounts to prevailing market prices, but investors would need to pay 1-1.5% in “fees” to facilitate the settlement and for the company to “take on the risk” of doing so…
Naturally, this “arrangement” proved to be very profitable (and completely risk free…) for Effective Capital; but it also made the KLSE radioactive for local and especially foreign investors (those with longer memories…) for decades to come (the KLSE and its investors also faced a share hangover with CLOB shares having to be released for trading in tranches) plus it strained relations with Singapore and made most investing in Malaysia toxic for Singaporeans…
For further reading about the CLOB saga (🗃️ = linked archived article):
Why bring up the CLOB fiasco more than 25 years later?
Many Singaporean investors who got burned asked why their government had even allowed them to invest in CLOB. Ultimately though, responsibility rests with investors understanding the risks associated with their investments – especially those in offshore jurisdictions or on potentially dodgy exchanges (THINK CRYPTO…). This led to the creation of the Securities Investors Association to help better educate Singaporeans with events and webinars.
The CLOB saga also deserves some renewed attention with the recent launch of Singapore Depository Receipts (SDRs) as a tie-up between Singapore’s stock exchange and the Stock Exchange of Thailand (SET) and Hong Kong’s stock exchange to allow Singaporean investors to invest in blue-chip stocks in these other markets. Again, investors need to take the time to understand how these SDRs work and what can go wrong in the worse case scenario.
Finally, I should take the time to bring up the Malaysia My Second Home (MM2H) program and how it ties back to CLOB and the risks of investing in Malaysia as investors often have short memories.
Under long time Barisan Nasional (BN) rule, the program (a predecessor program was originally launched by Mahathir and intended for retirees from Western countries and places like Japan, but later opened to all ages and recognized nationalities) did not change much for foreigners.
In 2020 after the Mahathir’s government (which had replaced BN after he went over to the opposition and won the 2018 elections) fell, the program was suspended pending “review and improvement” by the new government.
Under one of the first proposed relaunches, instead of depositing RM150k (age 50 and older) and RM300k (younger than age 50) Ringgit into term deposits held at Malaysian banks for the duration of the visa (interest could be drawn off), RM1-2M+ would be required and the Minister in charge of the Ministry ultimately running the program said these new requirements would apply to everyone holding the visa under the old requirements (which, technically, violated the terms of the old program as everyone was supposed to be grandfathered in under whatever original rules in place when they joined)...
In Malaysia, foreigners can obtain permission from state land offices to purchase property with the minimum values usually being RM1-2M depending on the state (although I think its as low as RM600k in some smaller states). At these values (and with the glut of high-end properties), there is almost no secondary market outside of certain hot areas of Penang (an Island).
In other words, the Minister was effectively saying “that’s a nice multimillion Ringgit property you own, IF you want to renew your visa to continue living in it, you will need to cough up another RM1-2M+ in paid-up capital…” This obviously did not go unnoticed by other foreign investors (as in “that’s a nice chip plant you own, now cough up another X in paid-up capital…”)…
Fortunately, that government and Minister did not last long enough to implement the proposed rule change and we never had the opportunity to see IF a group like Effective Capital would appear to “help” foreigners who could not meet the new requirements to dispose of their multi-million Ringgit properties…
Nevertheless…
The fact that such a proposal was even made has made the program almost as radioactive as the KLSE was after the CLOB fiasco and burned through all the good will, trust, and confidence the old program had generated…
Under the latestttttt relaunch of the MM2H program under the current government, its effectively been turned into a property buying scheme to try and unload the glut of high-end properties around the country and in Forest City (in Johor overlooking Singapore) and other Johor special economic zones in particular.
Without going into the program’s new details, its frankly only attractive to middle and upper middle class PRCs, Bangladeshis, Pakistanis, etc. who can get their money out of their respective countries (and don’t have many other options) and anyone (ex-Malaysians, foreigners married to Malaysians, etc.) who, for whatever reason, have a strong desire to live in Malaysia AND are willing to stomach the risk of property buying with potentially limited resale possibilities under a visa program that could change again under a successive government.
As for Singaporeans: Even though Malaysia is much cheaper (and arguably a better place to live than Singapore), I doubt many who are at or nearing retirement age (and were either burned by CLOB or know someone who was) will be buying many properties in Malaysia under the new MM2H program…
Over the past two decades, the Ringgit has ranged from roughly as high as RM3 to US$1 to as low as RM4.8 to US$1:
As you can see from the above chart, the Ringgit heavily depreciated during the twilight of Barisan Nasional (BN) rule with Prime Minister Najib’s many corruption (and other…) scandals and when the commodity bubble burst. Najib and the ruling party lost the 2018 elections to former Prime Minister Mahathir who’s government collapsed at the start of COVID after the so-called Sheraton Move (when various political figures met at the Sheraton Hotel to hatch out various political schemes and plans…).
After two more Prime Ministers during COVID, jailed opposition figure Anwar Ibrahim’s opposition coalition emerged the winner of the November 2022 elections with him finally becoming Prime Minister. Since then, Anwar has no doubt done a few deals to prevent the sort of backstabbing parliamentary or backroom deals that brought down previous governments – thus eliminating some of Malaysia’s political noise and risk for the time being.
The Ringgit also suddenly strengthened a few months ago and hit as high as around the RM4.08 mark only to fall off since then. Much of that sudden appreciation was on the US interest rate cuts along with the China stimulus; but also, in part, due to Malaysian government linked companies (GLCs) (Malaysia has a mixed economy with many government controlled or linked companies…) along with private companies being encouraged by the government to bring money held overseas back into the country.
However, I suspect the strengthened Ringgit has encouraged more Malaysians to get some of their money OUT of the country (with property in the UK and Australia being places where individuals may have parked some of their money…). And as with China and Vietnam in recent years, Anwar has made an effort to crackdown on corruption (which could also encourage more outflows from those who could be subject to investigation…) that, no doubt, will keep potential political rivals on their toes.
Likewise, the next general election must be held by 17 February 2028. What Anwar’s coalition will look like (assuming he will be running for re-election), and whether that will be another multiracial coalition including the Chinese dominated Democratic Action Party (DAP) or it ends up being an all Malay-Bumiputera party coalition, remains to be seen…
With that said and any more political noise and currency hedging aside, if your home currency is the USD, you might find yourself once again running uphill to find Malaysian stocks that will outrun any further Ringgit depreciation against the dollar. If your home currency is not the USD and is more or less moving with the Ringgit (or weakening against it), this will be less of a concern.
Note that when I go to Kuala Lumpur supermarkets, non-tropical fruit tends to come from South Africa and Egypt (as well as China, Australia, and New Zealand depending on the fruit or the supermarket) – two countries who’s currencies have probably been performing just as bad, if not worst, than the Ringgit.
Thus, investing in Malaysia (e.g. the new MM2H scheme…) should remain attractive to investors in frontier markets or countries like Pakistan, Bangladesh, etc. who continue to face political instability and risk that also hurts their currencies more than the Ringgit…
For further reading about Malaysian stocks, check out this recent post from Asian Century Stocks and Twitter handle:
🔬 9 Questions with Afiq Isa (Asian Century Stocks) September 2024 🗃️
Today, we’ll be talking to financial Afiq Isa. I know Afiq from Twitter, where he writes about Malaysian equities as well as broader trends in the Asia-Pacific.
Interest in Malaysia has picked up after Interactive Brokers announced they would offer full trading access to all of its clients.
Personally I admire two planters in particular: United Plantations Berhad (KLSE: UPBMF / OTCMKTS: UPBMF) － US$2.5 billion) and Kuala Lumpur Kepong Berhad (KLSE: KLK / OTCMKTS: KLKBY / KLKBF) － US$5.4 billion), storied names with decades of experience, capably managed, and adequate capital reserves to undertake expensive replanting exercises to improve overall fresh fruit bunch yields.
The data center angle is a multi-sector thematic. In the short term, major landowners in Johor state such as UEM Sunrise (KLSE: UEMS) － US$1.0 billion), S P Setia Berhad (KLSE: SPSETIA) － US$1.3 billion) and Tropicana Corporation Bhd (KLSE: TROP) － US$759 million) have already recognised proceeds from land sales for data center construction.
Gamuda Bhd (KLSE: GAMUDA) － US$1.0 billion), IJM Corporation Bhd (KLSE: IJM) － US$2.3 billion), and Sunway Construction Group Bhd (KLSE: SUNCON / OTCMKTS: SWCGF) － US$1.2 billion), who are among the country’s largest listed construction companies, have recently announced major contracts to build data centers.
Notably, YTL Power International Bhd (KLSE: YTLPOWR) － US$6.7 billion), the utility giant which had announced a data center collaboration with Nvidia utilizing the next gen Blackwell chips, had recently bought a majority stake in Ranhill Utilities Bhd (KLSE: RANHILL) － US$401 million), the listed Johor state water operator, ostensibly to ensure adequate infrastructure to accommodate DCs over the long term.
In addition, i3Investor (Malaysia) functions like Stocktwits for the Malaysian market (they also have versions for other markets such as Singapore’s) while The Edge Malaysia is an excellent local business paper with good coverage of local stocks and business news…
Getting back to the The Edge Billion Ringgit Club 2024, I realize these sorts of award events are often paid-for and sponsored corporate PR events that probably don’t mean much (in fact, there was such an article in a local Malaysian paper a few years ago about all of these “phony” pay-to-win award dinner ceremonies for local companies…), but this one is a little different given what the wining categories are:
growth in profit after tax over three years (30%)
returns to shareholders over three years (20%)
return on equity over three years (20%)
corporate responsibility (CR)
The rest of this post is organized as follows:
* Note: For paid subscribers on a desktop (non-mobile) browser (I am not sure about the Substack App…), an autogenerated Substack table of contents with the industry/sector, award, and award winning stock will appear as small lines on the left side of the desktop browser. I can only add those links the Table of Contents below AFTER this post is published and emailed out (which I will do within a few hours…).
You can decide for yourself whether or not any calculations for these awards are reasonably accurate…
To make your life easier, the rest of this post has a much shorter stock description (from our Oceania & Southeast Asia Stock Index) to make the whole post easier to skim through and includes:
Awards by industry/sector, then the specific award category, and then the name of the stock.
The linked headline to and excerpt from a detailed article from The Edge about the individual stock and why it received the award.
🌐🌏 etc. This is fairly subjective as, for example, many stocks are part of global supply chains rather than purely domestic companies.
🏛️ State owned, controlled, or influenced companies.
👼🏻 ESG friendly stock e.g. renewable energy. This is fairly subjective.
🅿️ Preference shares available (Note: I don’t see a comprehensive list of preference shares or preferred stocks readily available on the Internet…).
A very short description of the stock with links to the IR page and stock quote(s) on Yahoo! Finance or other sites.
Any Wikipedia page (denoted by 🇼) and a Substack stock tag link (denoted by 🏷️) linked to any post under EM Stock Pick Tear Sheets.
A price/book (most recent quarter) ratio plus forward or trailing P/E and dividend yields linked back to the Yahoo! Finance statistics page.
The latest long term technical chart linked back to Yahoo! Finance.
Finally, all of the stocks below have been added to our Oceania & Southeast Asia Stock Index which includes additional stocks and resources:
And as always, this post is provided for informational purposes only (and to make your life easier…). It does not constitute investment advice and/or a recommendation…
🔬 Research analysis (including articles/blog posts from fund managers, etc.); 🎥 Video; 🎙️ Podcast; 🎬 Webinar; 📰 Newspaper/magazine article; 📯 Press release; 💻 Substack/blog/website article; ✅ Our own posts; 🗃️ Linked archived article; ⏰ Upcoming webinar or event; ⚠️ Disclosures or restricted access e.g. based on your location, investor status, etc.; 🇼 Wikipedia page; 🏷️ Tagged links to other posts about the stock.
📰 Century-long household name delivers more than ‘good food’
Having been in this country for more than 110 years, Nestlé (M) Bhd (KL:NESTLE) continues to deliver on its philosophy of “Good Food, Good Life” through its diverse food and beverage (F&B) offerings, which include halal-certified, made-in-Malaysia products like Milo, Maggi and Nescafé.
📰 Pushing sustainability efforts with Allianz4Good
Allianz Malaysia Bhd (KL:ALLIANZ), part of the Allianz Group in Germany, had prioritised sustainability long before it became a global buzzword and concern.
📰 Expanding its presence at home and abroad
Gamuda Bhd (KL:GAMUDA) is no stranger to The Edge Billion Ringgit Club (BRC) Awards, having taken home eight awards in the construction sector and best corporate responsibility (CR) initiatives category over the years since its first win in 2013.
📰 An unwavering commitment to its corporate responsibilities
When Gamuda Bhd (KL:GAMUDA) achieved a record high pre-tax earnings of over RM2 billion in FY2023 and secured about RM15 billion in new contracts that bolstered its order book to a record high of RM25 billion, the group also demonstrated its unwavering commitment to corporate responsibility and sustainable practices.
🌏 Gamuda Bhd (KLSE: GAMUDA) – Infrastructure & property company with operations across Asia & the Middle East. 🇼 🏷️
Price/Book (Most Recent Quarter): 2.30
Forward P/E: 20.92 / Forward Annual Dividend Yield: 2.17% (Yahoo! Finance)
