There are obvious reasons why a pipeline of successful initial public offerings (IPOs) plays an important role in the continuous development of an equity market. The addition of more “good” companies will add to diversity and depth in the market that will attract a wider pool of investors, with differing strategies and goals. Capital inflows improve liquidity — and have positive effects on exchange rates and investments in the country — all of which create a positive feedback loop. The best companies will choose to list on exchanges where they can get sustained high valuations, while their growth and upbeat outlooks will, in turn, boost overall investor (retail and institutional) interests and sentiment as well as valuations for the stock exchange.
In short, the listings of good quality companies, especially those with strong growth prospects, and with realistic capital gains potential, will generate excitement and enhance the market’s attractiveness to investors, both domestic and global. That got us thinking: Could the chronic underperformance of Bursa Malaysia — compared with global markets and other forms of investment such as property, and even no risk fixed deposits — be partly due to the dearth of such quality IPOs in recent years? See Table 1. (Bursa’s strong gains in the year to date significantly boosted otherwise even more lacklustre long-term performance.)
