This article first appeared in Personal Wealth, The Edge Malaysia Weekly on August 12, 2019 - August 18, 2019
The task before Ruzi Rani Ajith seems to be a mammoth one, yet it will allow her to show her mettle in an industry that she has been a part of for more than two decades.
Ruzi has been entrusted with spearheading newly established brokerage firm CGS-CIMB Securities Sdn Bhd. This comes at a time when the global and domestic economic environments are facing strong headwinds.
The brokerage firm — a joint venture between CIMB Group Holdings Bhd and China Galaxy International Financial Holdings Ltd, a wholly-owned subsidiary of China Galaxy Securities Co Ltd (CGS) — started operations on July 1. It marked the first foray by a Chinese stockbroker into Southeast Asia.
This arrangement has opened a new revenue stream for the brokerage firm because as a standalone entity, it is not restricted by the regulations imposed on investment banks. For Ruzi, who was previously head of equities at CIMB Investment Bank Bhd, it is time to up her game as the firm competes for retail customers.
In an interview with Personal Wealth, Ruzi says the partnership has opened up a bigger market for the brokerage firm, giving it a wider reach.
Prior to the joint venture, CIMB Securities’ focus was on its institutional client base as this group of investors make up the bulk of participants on Bursa Malaysia. According to the bourse, as at the first quarter of this year, retail investor participation stood at about 25% while that of foreign and institutional investors stood at 75%.
As CEO, Ruzi is looking to improve CGS-CIMB’s offerings for retail clients. “We have very strong shareholders backing us — CIMB Group and CGS — both of which are reputable names. When we were part of the investment bank, we focused entirely on the cash equities business,” she says.
“But now, we can introduce a wider array of products. We could not introduce many products back then because Bank Negara Malaysia’s regulations made it difficult for an investment bank to do so.
“As a standalone brokerage firm, we can do much more, although equities will still be our key focus. We are expanding into complementary products that will support the equities business. We are looking to incorporate margin financing, offer exchange-traded funds, expand our Islamic offerings and introduce derivatives and even money lending. There are now more avenues to generate revenue.”
Ruzi says margin financing allows retail clients to participate in activities such as initial public offerings (IPOs). “It also comes into play if they need financing for their cash equities settlement.”
The brokerage firm plans to introduce more shariah-compliant securities, which are sought after by investors who adopt responsible investing practices such as adhering to environmental, social and governance principles.
“Previously, we could not expand our Islamic offerings beyond certain products due to limitations. But now, we would like to offer shariah-compliant products on iTrade — our award-winning online brokerage service — so that even retail investors can participate in Islamic stockbroking,” says Ruzi.
Direct access
The ultimate goal of the partnership is to provide direct access to China’s burgeoning capital markets, says Ruzi. “By having CGS as our partner, we can tap into China’s growing capital markets and leverage their sophisticated technologies, for example. This can help us expand our retail footprint. On top of that, the collaboration allows us greater access to the capital markets and enables us to participate in IPOs and other opportunities there.”
CGS is the fifth largest investment bank and brokerage firm in China. “They are very savvy in terms of mobile applications and have a wide reach in the Chinese retail market,” she says.
These are the capabilities that Ruzi hopes to build on. By integrating CGS’ technological skills, she wants to expand the reach of the iTrade platform, which is currently the largest online retail brokerage service in Malaysia.
“CIMB Group has always been at the forefront of the stockbroking industry. In 2005, we made our first foreign acquisition when we bought Singapore-based GK Goh Holdings Ltd, marking our foray into regional markets,” she says.
“In 2012, we acquired Royal Bank of Scotland’s businesses in Asia-Pacific, which expanded our footprint in India, South Korea and Australia. The CGS-CIMB joint venture could help us become the leading financial institution in Asia.”
Investors can access Chinese equities through several share classes, the largest being the A-shares. These are traded in mainland China on the Shanghai Stock Exchange and Shenzhen Stock Exchange.
Earlier this year, global index provider MSCI began initiatives to quadruple the weighting of China A-shares on its flagship Emerging Markets Index — an influential benchmark tracked by funds managing US$1.9 trillion (RM7.9 trillion) worth of assets. The weightage will increase to 3.3% by November from the current level of 0.71%.
This is where the partnership is beneficial as it provides opportunities to access China’s vast market directly, says Ruzi. “We can probably seize the opportunity to get China to channel its business or trade to this region. I think we are in a very sweet spot to capitalise on that.”
The heyday of stockbroking
Ruzi’s challenge will be to grow CGS-CIMB’s market share amid the difficult market conditions and disruptions driven by technology that have made capital markets a lot more competitive. But she is no stranger to such challenges. After all, she cut her teeth on fund management in the 1990s, when Malaysia was regarded as the largest emerging market in Asia ex-Japan with a market capitalisation that exceeded even that of Singapore.
Ruzi returned to Malaysia after completing her Master of Business Administration at Ohio University in the US. She joined Permata Merchant Bank’s investment banking arm as a fund manager in 1993, which turned out to be one of the most exciting periods in local stockbroking.
At the time, the Malaysian stock market was an attractive proposition to foreign investors who believed that the country was supported by relatively strong macroeconomic fundamentals and a resilient financial system. At its height in 1993, the market enjoyed such a strong rally that it became known as the Super Bull Run.
“The market was highly speculative as the fundamentals were not [anywhere close to their valuations]. It was very easy to make money without much skill because the market was extremely sentiment-driven. Just about anything the brokers recommended went through,” says Ruzi, adding that witnessing the market’s performance first-hand was an experience unlike any other.
In 1996, she decided to try her hand at stockbroking. “I received offers from many brokerage firms to join their sales departments because they wanted candidates with a background in the fundamentals to beef up their equity sales teams. But moving from fund management to sales was not an easy choice,” she says.
“As a fund manager, I did the buying and brokers sold their ideas. I had my doubts about going into sales, but I always believed that in every situation — good or bad — there are opportunities.”
Ruzi subsequently joined CIMB Securities, which was then an up-and-coming brokerage firm, as she felt there was more room to explore different areas. And the rest, as they say, is history. In her 23 years at the firm, she has served in various positions and won numerous awards.
“I was very lucky to join the stockbroking industry in its golden era,” says Ruzi, reminiscing about the day-to-day scenes of the dealing room, which were like those described by Jordan Belfort in his book, The Wolf of Wall Street.
“That was when dealing rooms were made up of boxy computers, paper strewn everywhere, phones being slammed and people screaming into the phone or talking with a handset in each hand. Those were really exciting times and CIMB Securities was growing rapidly.
“I was doing a pretty decent job as I managed to close my first sale in the first month on the job. Probably because I knew what fund managers were looking for as I could put myself in their shoes.
“Every successful sale encouraged me to keep going. Stocks were soaring, IPOs were selling like hot cakes and the number of deals we were closing was just astonishing.”
Ruzi’s early days as a stockbroker was nothing short of amazing, she says. By the early 2000s, they would joke that CIMB Securities was becoming “The Wolf of Semantan”, she laughs.
However, the local bourse never quite regained its dominant position after the 1997/98 Asian financial crisis. “After the crisis, the Malaysian stock market rebounded strongly because our capital controls helped us to recover very fast. These measures also sheltered us from the effects of the 2008 global financial crisis,” says Ruzi.
Challenging environment
While Malaysia’s fundamentals are much stronger now than in the 1990s, issues such as weakening global crude oil and commodity prices as well as domestic political instability have started taking a toll on the country’s growth.
“Many companies and financial institutions went through a certain level of recalibration after expanding strongly between 2004 and 2012. But now, we no longer see new deals coming through the market,” says Ruzi.
“After the general election, things have become even more uncertain because the new government does not have a clear direction just yet. So, foreigners are not willing to take the risk and have put Malaysia on the backburner.
“The country is not a preferred investment destination at the moment. But the opportunities are there if valuations become compelling or if the ringgit becomes too cheap to ignore. That is when investors will look at Malaysia again.”
Apart from the economic uncertainties, the local stockbroking industry is also grappling with challenges such as digital disruption. Ever since the Securities Commission Malaysia liberalised brokerage rates in 2009, fees and commissions have been lowballed.
“Brokerage firms have started lowering their fees to stay relevant and gain market share. This is despite the fact that clients are more demanding and more sophisticated than ever,” says Ruzi.
“They expect brokers to provide electronic trading platforms, algorithms and good research tools. But the investment cost is very high for these things. Producing quality research and employing award-winning analysts are not cheap.
“The cost of running the business is getting higher, but brokerage fees and revenues are getting lower and these are not compensated by the volume of trades because of the current market conditions. So, we need to be smart and look at how we can sustain the business.”
The local stockbroking industry has also had to deal with regional competition. “We have to compete for foreign funds with the exchanges in Asia,” Ruzi points out. But every challenge presents a new opportunity, she adds.
In the past, retail investors were drawn to investments such as unit trusts as these instruments were not immediately affected by upheavals in financial markets. Today, technological advancements such as robo-advisory platforms and algorithm trading provide a glimmer of hope in encouraging more retail participation.
“All these may get younger clients into the stock market, where there is a huge gap. This group is attracted to digital platforms, which have lower transaction costs,” says Ruzi.
“CGS-CIMB aspires to be a data-rich company because good data is the way forward. As a stockbroker, we can use data to segment and customise bespoke services for every category of clients. This is one way to increase our volume.”
This is in line with Bursa’s efforts to increase retail participation in the local equity market to boost market vibrancy. Last year, the stock exchange introduced measures such as a volume-based incentive programme and a six-month waiver on trading and clearing fees for new investors who have just opened their central depository system account.
The regulator also offered stamp duty exemption for the stocks of mid and small-cap companies for a period of three years starting from March last year. It also liberalised its margin financing rules.
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