Malaysia’s Prime Minister and Finance Minister Najib Razak recently announced the plan for the opening of a new trade link between the stock markets of Malaysia and Singapore. In his speech at the biennial World Capital Markets Symposium 2018, the Malaysian premier said that the trade link will allow both countries “seamless access to each other’s markets.”
The trade link is envisioned as a way to spur the economic growth of the neighbouring countries by linking Bursa Malaysia (BM) and Singapore Exchange (SGX). With its opening, Singaporean investors will no longer have to rely on a Malaysian broker for their investments, and vice versa, thereby cutting down the cost of fees and other charges, as well as time taken to complete the transactions.
However, we don’t see how these benefits apply to the two nations’ retail investors, and this is why.
If there’s anything the recent dip in the US stock market – and subsequently in the Asian market – has taught us, it is that the world’s economies are no longer isolated.
The same holds true even at the retail investor’s level. Trading in international stock markets has become extremely easy in recent years. By simply opening a brokerage account in Singapore or the country where you wish to invest (or if you wish to make matters even easier, you can buy unit trusts that invest in overseas markets for you), you can reach markets and companies anywhere in the world. From Apple in the US to Samsung in South Korea, no company is too far to reach.
In addition to ease of connection, the international stock exchanges that are popular with retail investors are also far larger as compared to SGX or BM. The largest in the world, the New York Stock Exchange (NYSE), is worth over US$19.6t (S$25.8t). Even within Asia, there are larger overseas markets one can invest in – Tokyo and Shanghai are worth US$5.1t (S$6.7t) and US$4.2t (S$5.5t) respectively. In comparison, SGX has a market cap of US$680b (S$897b) and BM is capped at US$372b (S$491b).
This means that the opportunities for retail investors in both Singapore and Malaysia are far more lucrative in other overseas markets. As such, the opening of the trade link will not have a huge impact on them. It’s true that they still need to have a brokerage account in those other markets compared to Singapore or Malaysia (for Malaysian and Singaporean investors respectively), but the sheer size and number of opportunities makes that almost an inconsequential consideration.
In his address, PM Razak highlighted that this corridor, which will be operational by the end of 2018, would mean access to US$1.2t (S$1.6t) and 1,600 publicly listed companies. MAS assistant managing director Lee Boon Ngiap separately also expressed the hope that after the successful implementation in the two bordering nations, the initiative will in time be applied across all ASEAN countries’ stock exchanges. For institutional investors in both countries, this will mean an impetus for trade as they can now conduct more transactions in less time, while also saving costs.
Thus, while the new trade link suggests considerable benefits for institutional investors dealing with a large number of trades, for the retail investor, life will go on much as usual.