This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on Dec 28, 2015 - Jan 3, 2016.

THE GLOBAL investment landscape has changed rapidly in recent years. Major economic events like the 2008 global financial crisis have caused traditional assets to depreciate, thus giving rise to alternative investments and instruments that help investors preserve their wealth.

However, not all alternative investments have taken root in Malaysia. Some instruments like ETFs are still establishing their presence despite being offered for the past decade, while other newer options like retail bonds are still finding their footing. Bitcoin continues to be volatile, although the use of the digital currency as a mode of payment has become more widely accepted. All eyes will be on equity crowdfunding (ECF) next year as the six approved local platforms launch their operations. Below is a round-up of how the four investment options have developed and performed this year.

ETFs

Exchange-traded funds (ETFs) are widely traded in developed markets, but not in Malaysia, where 17.5 million units of local ETFs were traded in 2014, according to Bloomberg  data. Although that has increased 66% to 28.8 million units as at Dec 18, it is still below the industry’s expectation.

For comparison, the FBM KLCI’s average daily trading volume is about two billion shares while heavyweights such as Malayan Banking Bhd have an average daily trading volume of about 10 million shares. 

A reason for the slow growth of the industry is because ETFs are not considered a profitable product for local fund managers as they carry low transaction charges compared with unit trust funds.

Mahdzir Othman, CEO of i-VCAP Management Sdn Bhd, a wholly-owned subsidiary of Valuecap Sdn Bhd, has seen the trading performance of ETFs improve this year. “The increase shows that investors, particularly retail, are warming up to the idea of investing in ETFs, possibly due to the increased understanding of the product,” he says, adding that the company has been collaborating with Bursa Malaysia to educate the investing public on ETFs. 

“Nonetheless, as the volume is not significant [compared with listed stocks], investor education activities will continue to be carried out to see greater participation.” 

The company has introduced four Islamic ETFs into the market thus far. Mahdzir says the company has been working with financial intermediaries such as commercial banks to push more products into the market. “We have more products in the pipeline,” he adds.

The first ETF was launched in 2005. To date, there have been eight ETFs trading on the local bourse, launched by three providers. This is a far cry from neighbouring markets like Singapore, which has 86 ETFs trading (as at Dec 18). 

This year alone, i-VCAP launched two products — the  MyETF MSCI Malaysian South East Asia Islamic Dividend and MyETF Thomson Reuters Asia Pacific ex-Japan Islamic Agribusiness. In comparison, only six products have been launched in the past 10 years. 

But have ETFs delivered the desired returns to investors? Pong Teng Siew, head of research at Inter-Pacific Securities Sdn Bhd, does not think so. He says ETFs have “faded away” from the radar screens of investors in recent years, as people turn to other derivatives for higher returns.

Pong attributes the lacklustre trading performance of local ETFs to their relatively low returns as they passively mirror the movement of an index. The lack of liquidity is another reason.

“Local indices such as the KLCI do not move much and are not volatile. ETFs won’t give investors as handsome a payoff as an individual stocks do. They are more ‘boring’ and people don’t want to trade in them,” he says.

Pong believes the industry can be further improved if more sector-focused ETFs are introduced. He singles out the oil and gas sector as it is getting harder for investors to look at individual stocks amid the volatile market. 

“An oil and gas ETF would be able to provide a broad view to investors in the sector and this would be much better for them,” he says, adding that the plantation sector might also pick up in the future. 

While admitting that there is low trading volume in the ETF market, Mahdzir believes this is mainly due to low investor awareness of the product. But he does not think ETFs provide a lower return to investors compared with other products such as unit trust funds.

“In fact, only about 25% of the unit trust funds out there really beat the market, if you take into account the various fees they charge investors. ETFs are low cost and charge low fees. If you look at the Lipper table [which shows the performance of unit trust funds and ETFs], the returns of ETFs are high if you take into account the 5% sales charge of the unit trust,” he says.

Mahdzir is confident ETFs will eventually take off in a big way in Malaysia as this is happening in the rest of the world, especially in developed nations. “People are pulling out their money from unit trust funds and putting it into ETFs in other parts of the world. ETFs are taking off slower in Asia, but you can see them getting more popular in countries such as Singapore, Hong Kong and South Korea.”

Bitcoin

Bitcoin has come a long way since its launch in 2009 by its creator who goes by the moniker of Satoshi Nakamoto. It is now accepted by more than 100,000 merchants worldwide, according to figures compiled by BitPay, the leading bitcoin platform based in Atlanta. In comparison, only about 60,000 merchants accepted bitcoin in April last year, according to CoinDesk, a provider of news and information on digital currencies and its underlying technology.

Among the companies that accepted bitcoin payments in the last few years were Microsoft, Dell, Paypal, Rakuten, Amazon, Wikipedia, i-Pmart and Expedia.

Bitcoin can be traded, transferred, mined and used to pay for goods and services.

The Bitcoin Price Index (BPI) crashed on Jan 14, dropping 22% overnight to US$177.28. It was said to be due to mining operations and other cryptocurrency services that ponied up their liabilities by selling bitcoins. This brought down the value of the currency, which led to a rush to dispose of it.

This year also saw the introduction of rules to regulate the emerging technology. In June, the New York State Department of Financial Services adopted BitLicense, the first virtual currency-specific licensing regime to address bitcoin and digital currencies. The guidelines are aimed at protecting consumers, preventing money laundering and boosting cybersecurity.

Then, a number of prominent bitcoin companies in New York ceased operations and relocated to other states as the regulations involved high costs and difficult paperwork.

Bitstamp, the world’s third largest exchange in terms of BTC/USD trading volume, estimated its entire application to cost US$100,000, including time allocation to process the paperwork and legal and compliance fees.

The highest price for bitcoin this year at the time of writing was US$465.50 and the lowest being during in January crash.

Although bitcoin did not perform well in the first half of 2015, Colbert Low, the founder of BitcoinMalaysia.com, says its price rose in the second half.

“During 3Q and 4Q, bitcoin prices increased 20% and 40%. A lot of users came back to stock up on bitcoins,” he says.

He adds that this was because Malaysian bitcoin users treated bitcoin as a type of commodity investment instead of using it for payments. “In Western countries, the users treat bitcoin as a payment system.

They use it to buy things online, or even get discounts on their coffee if they go to Starbucks and pay via the Fold app. But in Malaysia, they always treat it as a commodity investment, it is the typical Asian mindset.”

According to Low’s website, local merchants that began accepting bitcoin this year include Codashop (provider of Steam wallets, iTunes and Google Play gift cards), Bitstore.com.my — which sells YubiKeys (a security authentication device) — Jeq in The House Café in Petaling Jaya and RuzNor Corner in Johor Baru.

There is no way to determine the number of bitcoin users because of its pseudonymous nature. Low says the numbers are growing steadily in Malaysia — about 100 new users per day.

“Many people are coming on board. I manage a chat group that discusses the use of bitcoin and I get a lot of requests to join the group,” he says.

Several new bitcoin platforms have emerged in Malaysia. One of them is CoinBit.me, which offers services such as trading, payment and referral programmes. Launched in April, it now has 19,357 members.

With the rise of online scams and sites that offer fake cryptocurrencies, Low says bitcoin users need to be more careful and make sure that they go to trusted exchangers and traders such as the largest bitcoin exchanger in Malaysia, BitX.

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