The Ultimate Guide to
The Malaysian Financial Market
Previously known as the Kuala Lumpur Stock Exchange, in 2004 Malaysia’s primary stock market became the Bursa Malaysia Exchange. Run by the Bursa Malaysia holding company in Kuala Lumpur, the exchange aims to provide a steady infrastructure for the country’s marketplace.
While well-established large-cap stocks trade on the main Bursa Malaysia exchange, smaller cap stocks of emerging companies trade on the ACE Market. The main stock index for the Bursa Malaysia Exchange is the FTSE Bursa Malaysia KLCI or simply the FBM KLCI, with KLCI standing for the Kuala Lumpur Composite Index. This capitalisation-weighted headline index is made up of the 30 biggest companies listed on the Bursa Malaysia that meet the index’s criteria.
To promote Malaysia as an international nexus of Islamic banking and finance, Bursa Malaysia established an Islamic Markets group. This aims to develop a Shariah law compliant trading platform and suitable financial products. Shariah-compliant products traded on the Bursa Malaysia include i-Stocks, i- Indices, i-ETFs, i-REITs and Sukuk (Islamic financial certificates like bonds).
Furthermore, Bursa Malaysia Derivatives Berhad (BMD) was established in 1993 to provide a marketplace in commodity, equity and financial derivatives relevant to Malaysia. BMD’s products are now tradable via the CME Globex trading platform to allow greater access to Malaysian derivatives within the global market. In addition, the Labuan International Financial Exchange (LFX) was launched in November 2000 following the territory’s designation as an international financial centre in 1990.
Forex traders may recognise the Malaysian ringgit (MYR) as Malaysia’s national currency, although the MYR is not a common reserve currency among central banks, according to the International Monetary Fund (IMF). The ringgit was ranked 25th by the Bank for International Settlements (BIS) among the most actively traded currencies in 2016, making up around 0.4 percent of the overall forex market’s daily turnover that was about the same as its market share in 2013.
Financial regulation in Malaysia for online forex and contract for difference (CFD) brokers falls under the auspices of the Securities Commission Malaysia (SCM) that was established in March of 1993 under the authority of the Securities Commission Act 1993 (SCA). This self-funded statutory body reports to the Minister of Finance and has responsibility for regulating and developing the Malaysian capital markets, including businesses and persons who hold licenses under the Capital Markets and Services Act of 2007.
Trading in Malaysia
When looking for an online broker to trade forex or CFDs with, make sure to choose a well-regulated broker that has a strong reputation with clients, since they should be suitable for entrusting a margin deposit with them.
Online brokers generally offer several trading accounts for traders, including:
- Forex Trading: Exchanging one currency for another forms the basis of forex trading. Exchange rates fluctuate as one currency rises or falls relative to another in particular currency pair. The popularity of forex trading has expanded greatly once online trading became possible. The forex market is the most liquid and largest financial market globally and had a daily turnover of $5.1 trillion/day in April 2016, according to data compiled by the BIS.
- CFD Trading: Making transactions in derivative financial instruments known as contracts for difference (CFDs) allows traders to speculate on the future of their underlying assets. Such assets can consist of a currency pair, commodity, stock, stock index or other financial instruments.
- Demo accounts: Funded with virtual money, these accounts can be used to practice trading, test a strategy or check out a broker’s services and platform. Find out more on opening demo accounts here.
- Islamic accounts: These are suitable for traders who wish to trade in an account that conforms to Sharia law. Find out more on trading with an Islamic account.
With respect to trading stocks, the Bursa Malaysia Exchange provides trade execution in Malaysian stocks, fixed income products, funds and exchange-traded funds (ETFs), including Islamic products. Exchange transactions are largely executed in Malaysian ringgits.
Opportunities of Trading in Malaysia
According to export.gov, Malaysia also has a very favourable geographical position as “a crossroads of trade between the East and West” and has especially liberal trade policies that can result in good trading opportunities. International trade remains very important to Malaysia, with the World Trade Organization (WTO) reporting that imports and exports of goods and services equated to roughly 130% of GDP as of 2016.
Malaysia also has a strong financial services sector that specialises in providing Islamic investment products and accounts. The country offers additional advantages for doing business as follows:
- A relatively high-tech and competitive nation
- Gas and oil producing country
- Widespread use of English
- A well-established legal framework
- Excellent infrastructure
- High visa approval rate
- Recognises the importance of international trade and relations
- Was a founding member of the World Trade Organisation
Furthermore, Malaysia was ranked 15th for the overall ease of doing business by the World Bank, and the country ranked even better at 2nd for protecting minority investors. When it comes to practical matters for new businesses planning on opening an office, like getting electricity and dealing with registering property, Malaysia ranked favourably at 4th and 29th respectively. The country also ranked an impressive 3rd for ease of dealing with construction permits.
Challenges of Trading in Malaysia
China and the United States remain two of Malaysia’s largest trading partners, so any strain in the relationship between these neighbours, such as an escalating trade war, could cast significant uncertainty on the Malaysian economy. As a consistent net exporter with a high trade-to-GDP ratio, Malaysia’s economy can suffer from tariffs, trade wars and the failure of major trade agreements.
Furthermore, the overall forecast for Malaysian and other Asian stock markets in 2019 have, according to reports, remained rather negative. This is largely due to concerns about global economic health, as well as ongoing profit taking activity and worries over the U.S.-China trade war.
Bank Negara Malaysia, the Malaysian central bank, has often intervened in the currency market to stabilise the USD/MYR exchange rate, which can sometimes trend notably over time. These currency valuation shifts can cause foreign exchange uncertainty for traders and businesses looking for a more stable environment to operate in.
When it comes to starting a business, the World Bank ranked Malaysia a rather poor 122nd compared to other countries, although the country ranked 32nd for obtaining credit. This indicates a relatively unfavourable environment for starting up a business that requires local financing.
Summary
Overall, many traders and businesses find Malaysia a relatively favourable country to operate in due to its liberal trade laws and diligent financial regulatory oversight by Securities Commission Malaysia.
When searching for a broker to trade through in Malaysia, people should check to see that they offer a suitable range of asset classes, a decent trading platform, strong regulation and adequate financial security for a margin deposit. Furthermore, Islamic traders may find Malaysia an especially good place to open Sharia law compliant accounts and trade Islamic financial products.
