Friday 29 Mar 2024
By
main news image

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.

Equity crowdfunding

This year saw the introduction of regulations for the offering of equity crowdfunding (ECF) to sophisticated and retail investors.

In February, the Securities Commission Malaysia (SC) released the Guidelines on Regulation of Markets under Section 34 of the Capital Markets and Services Act 2007, which include new requirements for the registration of ECF. They also provide governance arrangements for ECF operators.

In June, Malaysia became the first country in Asia-Pacific to regulate this new alternative investment option.

Under the guidelines, start-ups and small enterprises are allowed to raise a maximum of RM3 million within 12 months regardless of the number of projects, and an aggregate of RM5 million via the ECF platforms.

Those who are permitted to make investments on ECF platforms are angel, retail and sophisticated investors. Retail investors can only invest a maximum of RM5,000 per issuer with the total amount not exceeding RM50,000 a year.

For sophisticated investors, there is no limit on the investment amount.

Angel investors are allowed to invest a maximum of RM500,000 a year.

ECF usually operates via an online platform, enabling entrepreneurs to raise capital for their businesses from investors. Details of the companies, the amount of capital sought and the shares being offered are listed on the platform. Unlike donation and reward-based crowdfunding, equity-based crowdfunding allows contributors to receive equity and they may get returns.

ECF opens up investing opportunities that were previously only accessible to industry insiders. Investors can expect higher returns from ECF platforms than from conventional asset classes such as property, stocks and unit trust funds, Lee Yen Ming, one of the three co-leads of Next Bank KL said recently.

This also provides an opportunity for investors to diversify their portfolios.

The SC has approved six ECF platforms out of 27 shortlisted applicants in June. They are Alix Global, Ata Plus, Crowdonomic, Eureeca, PitchIN and Propellar Crowd+. These platforms comprise local and foreign players.

PitchIN is a local donation and reward-based platform that will soon be offering equity options.

All six ECF platforms are expected to be launched next year.

According to SeedInvest CEO Ryan Feit, the global ECF market has grown from US$400 million in 2013 to US$1.1 billion in 2014. It is estimated to reach US$2.6 billion this year.

“The establishment of ECF is part of SC’s strategy to democratise finance,” SC executive chairman Datuk Seri Ranjit Ajit Singh said in June. “Small and medium enterprises and start-ups must also be able to obtain market-based financing for capital markets to be inclusive.”

The SC has bigger plans for fintech like ECF, peer-to-peer (P2P) and robo-advisers. The Alliance of Fintech Community (also known as aFINity@SC) is a SC-driven initiative launched in September that seeks to drive a network of fintech stakeholders to accelerate growth and innovation in the industry.

The SC is in the process of drawing up a regulatory framework and guidelines to govern P2P lending platforms. It expects these to be rolled out in the first quarter of 2016.

The framework for robo-advisers — online wealth management service providers that offer automated, algorithm-based portfolio management advice — is also in the pipeline.

Retail bonds

The retail bond market has been lacklustre since Malaysia’s first exchange traded bond and sukuk (ETBS) on Bursa Malaysia was launched in January 2013. Today, DanaInfra government guaranteed bonds are the only ones listed on the exchange.

The market has not seen any development, although the government talked about listing Malaysian Government Securities (MGS) on the ETBS this year.

DanaInfra Nasional Bhd is a special purpose vehicle established with the purpose of undertaking the funding of infrastructure projects assigned by the Malaysian government. It issued three rounds of retail sukuk to raise a total of RM500 million to finance the capital expenditure and operating expenses of the Klang Valley MRT project.

With this issuance, retail investors could buy or sell the bonds listed on the bourse with a minimum subscription of 10 units, with each unit having a face value of RM100. The retail sukuk has a coupon rate at 4% to 4.5% per annum and a maturity of 7 to 15 years.

According to Bursa data, the three sukuk issuances have remained quiet for most of the time and was not actively traded.

In an interview with Personal Wealth published on June 1, Nor Zahidi Alias, associate director of economic research and chief economist at Malaysian Rating Corp Bhd (MARC), attributed the lacklustre ETBS market to the unfamiliarity of the retail investors.

“In other words, retail investors are still not comfortable investing in bond market instruments, as opposed to equities. There is still a knowledge gap to be filled,” he says.

mahdzir_low_PW7_tem1090_theedgemarkets

In the same article, Wong Chee Seng, a foreign exchange and rates strategist at AmBank Group Bhd, said Malaysian investors tend to look at total returns, as opposed to risk-adjusted returns. “When you use risk-adjusted returns, you take the risk-to-reward ratio into consideration. A fixed income investment can give you better risk-adjusted returns than stocks, which are riskier assets.”

Apart from investors’ low awareness and familiarity with retail bonds, the lack of demand for such bonds could be due to the high costs involved, which make raising funds through this manner not an economically viable one.

“In the primary market, one of the reasons for the lack of ETBS issues is the relatively small retail market compared with the over-the-counter (OTC) bonds,” said MARC’s Zahidi.

“For example, the size of DanaInfra’s first retail sukuk of RM300 million is merely 1.5% of the programme limit on the OTC market. On top of that, the higher administrative costs involved in issuing ETBS to retailers, such as listing fees and interest distribution costs, also caused corporations to shy away from raising funds this way.”

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share