As early as 2006, the Securities Commission relaxed listing regulations, paving the way for foreign-owned companies to list on Bursa Malaysia.
Intention & Rationale
- Hoped that liberalisation would promote cross-border linkages with other markets through dual-listings
- Integration with global capital markets would improve the efficiency of the local market.
- Local bourse to benefit from an expanded pool of high-quality stocks
- Major stock exchanges around the world, including Singapore, Hong Kong and New York being active cross-border listings.
- China-based cross-border listing is common over the world.
- Direct entry into Chinese capital markets is notoriously difficult due to restrictions placed on the free movement of money by the Chinese government.
- Foreign ownership of shares traded on the Shanghai and Shenzhen exchanges are generally not possible. (Shanghai-Hong Kong Stock Connect was conducted in November 2014)
- Most stock exchanges embraced China-based cross-border listings as an opportunity to offer exposure to one of the most dynamic economies in the world.
- China firms face significant challenges to raise capital back home as listed in Shanghai or Shenzhen is nearly impossible due to competition and long waiting queue.
Numerous corporate governance issue emerges from China-based companies across the exchanges around the world, including:
- External auditor issuing qualified opinion for consecutive financial years
- Regulatory infringements
- Accounting fraud scandal
- Corporate scandal including embezzlement and forgery
- Bad publicity on China-based companies, resulting an incredibly cheap valuations
- Poor investor confidence
- Bad performance on share price
- No trust on the reliability of the cash reserve declared in their annual report
An overview of China-based companies listed on Bursa Malaysia. We can see the majority of the companies have delivered disappointing results and face severe corporate governance issues.
What causes it?
- Poor understanding of corporate finance and Malaysia corporate practice by the management
- Reluctance of China-based companies to pay dividends according to a regular schedule
How to amend this problem
- Both Singapore and New York have started banning cross-border listings following the various scandals involving China stocks.
- Systematically delisting China stocks
What is Bursa Malaysia doing?
- To date, Bursa Malaysia has not introduced any rules or requirements targeting China-based Bursa listings.
- Bursa Malaysia is a natural beneficiary of increased trading volume and it would only be natural for it to seek additional IPOs in order to push up trading volume.
- There are now 920 companies listed on Bursa Malaysia and China stocks are almost forgotten with low valuations and low trading volume.
- Thus, it can be argued that Bursa Malaysia is not built with a structure to prioritise retail shareholders.
The sudden surge in interest in red chips and active promotion by a prominent investor, do values emerges among China-based counters? The decision lies in your hand.
A successful exchange is determined by the value it creates for all stakeholders instead of trading volume and numbers of listed companies while a market competitiveness is assessed by investors who feel they are getting a fair deal and return on their investments.
Quality markets and companies are built on the track record of good corporate governance and value creation.
Source: Kinibiz, Reuters, The Edge, Bursa