In mature capital markets like the US, there are many prominent and effective activist investors who take a hands-on role in maximising shareholder value. Some of the common strategies include advocating for key management and strategic changes, operational improvements, capital structure management (dividends and share buybacks) and even the outright sale of the company if it is the best course of action to maximise shareholder returns.
It is critical that there are continuous efforts to enhance the appeal of the local stock market in order to attract and retain investor money flows amid increasing competition from other emerging markets. This is particularly true of smaller bourses, which lack the product range and liquidity of larger markets in the region such as China, Hong Kong and Japan. It is the main reason why the Singapore Exchange (SGX:S68
) (SGX) and Stock Exchange of Thailand (SET) recently pushed to strengthen their depository receipts linkage programme to expand cross-exchange listings between the two countries. And Bursa Malaysia has been invited to join as well.
As we highlighted last week, valuations for Bursa and SGX are low compared to the US market. More than half of the companies listed on the two bourses are trading below their book values. Aside from relatively weaker earnings and growth outlook, another reason for the low valuations is likely their comparative illiquidity, due to lower free float of shares. Higher liquidity typically draws more and diverse investors and boost trading volumes that should also lead to improved valuations. Better valuations matter — to existing listed companies seeking to raise fresh capital from the market as well as to attract quality IPOs. Perennially low valuations defeat the purpose of a public listing.
