The question to answer is why would, say, London Stock Exchange (LSE) or another G-20 country stock exchange want to merge/acquire Bursa Malaysia? Is Bursa like Doha Stock Exchange (DSE), whereby, in 2008, NYSE Euronext beat out LSE and Deutsche Bourse for 25% in DSE? Today, does Bursa, part of FTSE Advance Emerging Market, have enough liquidity, velocity, volume, listing, reputation, etc, to provide value to LSE?
Concurrently, does Bursa want to be a small fish in the very big LSE pond? Why would Bursa want to offer itself from a position of, not weakness, but inequality? But, would Bursa want to bid for ASX after failure of the SGX bid?
The arguments for common platform, back-office integration, economies of scale may make more sense when the marriage is between emerging market exchanges, especially Bursa’s budding state-of-the-art technology platforms, products, and clearing. For an advanced emerging market, Bursa has solid regulatory framework, sound governance, confidence building investor protection and has better weathered the global financial crisis than some of the Gulf Cooperation Council (GCC) markets and countries.
If Bursa is to be part of a stock exchange acquisition/merger, then it should look at selected OIC countries. This type of transaction may be part of the Islamic Development Bank’s (IDB) mandate to facilitate intra-OIC trade and investment flows to 25% by 2015, to build size. Obviously, the host country national agenda’s poison pill’ defence will also be offered by the target exchanges, but, at times, it’s merely a strategy for a higher asking price.
Exchanges in countries such as Pakistan, Kazakhstan, Turkey, Egypt, Nigeria, UAE (DFM or ADX) or even Saudi Arabia may be the ideal internationalisation for Bursa. These countries are early, emerging or established Islamic finance hubs and the linkage to Bursa allows them to compress the learning curve, from products to regulations.
For example, Bursa has been championing the Asean link and Organisation of Islamic Conference (OIC) countries are looking to establish a similar link.
Bursa may eventually become the LSE’ to some of these exchanges. It may just avoid sentiments (capital) colonisation, often used under rubric of national interest in the Muslim world. Thereafter, Bursa can approach the likes of LSE for a merger of equals!
As the architect of the Halal Food Index, I suggested Saudi, Ankara, Malaysia and Indonesia (SAMI). Malaysia’s leadership in Islamic finance fits in perfectly well with the initial internationalisation into the Muslim world.
If the proposal for merger encounters the commonly heard national interest defense, then, as a plan B, Bursa should consider leading a SAMI common platform, it may be easier than the present efforts for a GCC or OIC platform.
Furthermore, Malaysian blue chips CIMB, Maybank, Petronas, Proton, and Sime Darby probably have greater presence and recognition in the Muslim world than US, France, or UK, hence, building critical mass by starting with lower hanging fruits.’
Malaysia is contributing and leading the US$1 trillion Islamic finance market and the US$640bil halal food market. These two inter-related areas are not only building the national agenda of a halal-eco’ system, but, will have additional capital allotted as part of the Capital Market Plan 2 (CMP2).
Malaysia is a successful sukuk story, not only for listings, liquidity (v. GCC) but also handling of defaults, on Islamic REITs and ETFs, on Islamic stock brokering, and so on.
The launch of SAMI Halal Food Index by former Prime Minister Tun Abdullah Ahmad Badawi during the World Halal Forum, in Kuala Lumpur, was a no-brainer, as (1) the country was a natural place and (2) there are 95 Bursa-listed companies in the index.
Positioning “halal” as a new asset class with its launch pad in Malaysia created waves in all mainstream media and has resonated in countries where the “halal” term may be on the way to become google.’ A seeded halal equity food fund launching off the SAMI index, the world’s first, is a good story for roadshows in, say, the GCC, where, say, sovereign wealth and other type of funds are spending moneys to address the national food security issues. However, there are challenges Bursa needs to overcome if a meaningful amount of international investors, presently less than 25%, are to arrive on the Malaysian shores. Many countries, including G-7 members, are vying for the petro-liquidity of the GCC. Malaysia needs to do more than the informative’ road shows and one-on-one investor relations.
The speakers on the road shows may showcase Malaysia as an ideal Islamic and conventional investment destination for the ASEAN region, but the reality of illiquidity, too few investment instruments, etc, presents a “by-pass” of Malaysia into Singapore or Indonesia. For example, GLiCs’ holdings of major companies have reduced company liquidity, and, for international investors, liquidity is a paramount precondition for investing in emerging markets.
Liquidity begets liquidity,’ hence, liquid markets are the investment banker’s calling cards for IPOs!
Furthermore, whatever happened to the “talked up” BNP’s Easy ETF of 2010? Why is CIMB’s Asean 40 and Xinhua 25, both UCITS 3 compliant, prospering better in neighbouring Singapore? Why was the Sabana REIT listed in Singapore?
Are these issues related to lack of education and market awareness? Do the regulators need to do more? Will CMP2 overcome some of these challenges to address the investment leakage’ to neighbouring countries?
Bursa Malaysia needs to work from a position of informed strength, like Islamic finance, not opt for sentimental merger for the sake of flavor of the month’ or jumping on the bandwagon of G-20 stock exchange mergers. Bursa is an important stakeholder of a country poised to be a G-20 country in the future, but it must strategically and tactically position itself about size, platforms, products, and yields.
That’s the lyrics of a musical serenade’ to all international investors.
Global Head, Islamic Finance & OIC Countries, Thomson Reuters