The Ultimate Guide to Trading in Malaysia

If you are already trading stocks, forex, or other financial instruments online, you might be interested to learn about trading in different countries and on different stock markets. Expanding your trading activities and trading in different regions increases your opportunities and experience. For many traders, it’s an exciting and challenging way to branch out and try something different. Trading in Malaysia is an interesting opportunity for international investors. Malaysia’s main stock exchange is based in the thriving capital of Kuala Lumpur. Previously called the Kuala Lumpur Stock Exchange, it is now known as the Bursa Malaysia, Bursa Malaysia Berhad, or Malaysia Exchange. 

You will also hear traders talk about the Malaysia Derivatives Exchange, or Malaysia Derivatives Berhad. The is a subsidiary of the main exchange, established in 1993, providing trading opportunities in derivatives, mainly agricultural commodities but also metals, futures and options. You will also hear international investors talking about the MESDAQ (Malaysian Exchange of Securities Dealing and Automated Quotation) which was launched in 1997 and operated as a separate securities market, primarily focussed on companies in the technology sector. In 2009 the MESDAQ was actually replaced with the ACE (Access, Certainty, Efficiency) Market, with a focus on smaller, emerging companies. However, you will still sometimes hear it referred to by either name. This subsidiary exchange is also part of the main Bursa Malaysia and also based out of Kuala Lumpur. The Malaysian Exchange, then, operates as a two-tiered market, with smaller capitalised stocks of emerging companies generally offered through the ACE market, while large capitalisation stocks that are more well-established are listed on the main Bursa Malaysia Exchange.

Top Forex Brokers in Malaysia

How to Trade in Malaysia

The first step, if you’re interested in trading stocks, bonds, or other financial instruments in Malaysia, is to find a suitable online broker. Trading in Malaysia is available via various brokers that operate in the region, or offer access to the Bursa Malaysia. When trading in countries other than your country of residence, you have two choices. You can either open a trading account with a local broker based in the country you want to trade in, or you can open an account with an international broker who provides access to foreign stock exchanges. 

Be sure to check your options carefully when signing up to a new broker. Not all local brokers offer accounts for international clients, so it’s possible you will find the perfect Malaysian brokerage, and then find you are not eligible to open an account there. Also, not all brokers in your country will offer access to the Malaysian stock exchanges, even if they claim to be a global or international broker. Malaysia is a big player in the Asian money markets, but its stock exchange is nowhere near as large or well-known as some other exchanges in the region, such as the exchanges in Tokyo, Shanghai, Hong Kong or Bombay. Even some brokers who have a strong presence in Asia and say that they offer trading on the major Asian stock exchanges, simply don’t have the facility for clients to trade on the Malaysian stock exchanges. 

It is sometimes a little confusing trying to work out which brokers have access to which markets, and there is no telling why some brokers allow access to so many, and some so few. It costs money for a broker to register at each new overseas stock exchange, so costs are a factor. However, you should not assume that a broker will have access to more markets just because it’s bigger or more well-known. The HSBC bank is a large, well-known international bank, but its brokerage subsidiary, HSBC Invest Direct Plus only has access to a couple of global stock markets. In contrast, Interactive Brokers claims to offer access to over 70 international markets.

If you want to go down the route of a broker based in your country, but with the ability to trade the Malaysian stock markets, you may want to look for brokers with an office in the region. Many large brokers have a strong international presence, with several offices in different countries around the globe. You will need to do your research, and make sure that any broker you consider gives you type of access to the Malaysian Stock Exchanges that you need, in order to trade the instruments you want to invest in. And you will, of course, have to satisfy yourself that any broker you sign up with meets all your other needs and requirements.

Be aware that international brokers who are able to operate in Malaysia have some advantages, allowing you to trade in Malaysian assets and giving you access to the Malaysian stock exchanges, without having to open an account with a local broker. However, not all brokers outside of Asia will be able to offer direct trading on the Malaysian stock exchanges, and some won’t allow you to access Malaysian stocks and other financial instruments at all. 

When looking at brokers in Malaysia, or international brokers with offices in the region, you will, of course, want to ensure you are working with a fully regulated and authorised broker. The regulating body in Malaysia is the Securities Commission Malaysia (SCM) which is a self-funded statutory body, answering to the Malaysian Minister of Finance. International brokers who allow access to the Malaysian markets, but who do not actually have a presence in Malaysia, may not need to be regulated under the SCM but will, of course, need to be regulated by appropriate bodies according to the jurisdictions they operate in. 

In addition to finding and opening a suitable trading account for Malaysia, you may also need to open another account with the Central Depository System (CDS). This is an account for investors who want to trade in securities that are listed on Bursa Malaysia, which acts as a way of tracking the movement and ownership of securities on the exchange. It is separate from your actual trading account, although it may be opened simultaneously, through the same broker or bank that your trading account is held with. Your CDS account tracks all the shares that you buy and sell, even if you choose to have more than one trading account. So if, for example, you buy two different stocks through two different brokerage accounts, you will be listed as the owner of both stocks, via your CDS account. If you are using an experienced and reputable brokerage, they will be able to tell you everything you need to know about your CDS account, including exactly how to open one.

Once you’ve found a suitable broker and opened the appropriate accounts, you can start trading. There are a wide range of tradable instruments on offer via the Malaysian stock exchange. The benchmark index in Malaysia is the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI), which is a capitalisation-weighted index, comprising the 30 largest companies that are listed on the Bursa Malaysia. The index includes companies from various sectors, including finance, telecommunications, media and publishing, healthcare and real estate.

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Trading Opportunities in Malaysia

Malaysia has a vibrant economy, with a growing GDP, and the long-term health of the country and its economy is backed by some impressive statistics. The country has a population of almost 32 million, and its currency is the Malaysian Ringgit (with a currency code of RM). The Malaysian Department of Statistics reports a recent 4.4 % growth in GDP and a Current Account Surplus of RM 11.5 billion, along with Net Capital Stock that indicates the wealth of Malaysia’s economy has increased to RM 3.1 trillion.

One thing foreign investors need to keep an eye on, obviously, is the value of the Malaysian Ringgit, as is always the case when trading in countries outside of your own region, and in currencies other than your own base currency. Trading in another country (and currency) comes with risks, but also significant opportunities. As an international trader, when the RM is fluctuating, it is worth adjusting your trading strategy to capitalise on it (as is the case with any foreign currency exchange rate). Forex traders are naturally well-informed on using foreign currency price changes to make money, but when investing in other financial instruments internationally, currency price changes can also be used to your advantage.

It’s counter-intuitive, but a weak currency can often have a positive impact for foreign investors, allowing the purchase of shares and other financial instruments at a more competitive price, with the result of better long-term profits. Many forex traders will buy when the RM is weak, and the price is low, and then sell high, as they will with any currency. If you are trading in Malaysia, or any country with a different base currency to your own, there is opportunity for savvy traders to use changing currency prices, alongside their other trading strategies, to maximise profits over time. It should, however, be remembered that this is a complicated area, and working with foreign currencies always creates challenges (as outlined below) as well as opportunities.

Trading challenges in Malaysia 

Overseas investors need to be aware that Malaysia is still facing challenges, in spite of the overall growth of its GDP, and future predicted growth. The country still has unresolved trade tensions with other countries, and is affected by its deep financial and trade integration with other economies, meaning that an economic slowdown in larger economies across the globe, along with general volatility in worldwide financial and commodity markets, will potentially pose a risk to short-term economic growth in the region. 

Malaysia’s recent fiscal consolidation has also been driven primarily by expenditure rationalisation, and analysts believe that the country now needs to diversify, and strive to support future public investment. Malaysia’s current revenue from both personal income taxes and sales taxes falls well below the average levels in other middle-income and high-income economies, so tax reforms are probably needed to improve the country’s overall economic condition, which will, of course, not be popular.

When it comes to trading stocks specifically, there are always challenges involved in trading in a local market as an overseas investor. Malaysian stock listings are denominated in RM, so those based outside the region, and using a different base currency, will have to consider exchange rate fluctuations when trading. As mentioned above, fluctuating currency rates can be used to the advantage of the international investor but can also present a challenge, as well. Currency fluctuations add another layer of complexity to your trading and give you one other issue that can, potentially, negatively impact your trading activities and reduce or negate overall profit.

The Malaysian stock exchange, and the FBM KLCI, will also be affected by the performance of companies based in Malaysia, which are subject to local fundamental issues that may not be on the radar of international investors. 

You will also need to exert caution when picking a broker in Malaysia. Even if your broker is fully regulated by the SCM you may find that if you have a dispute with an overseas broker, it can be harder to resolve than one with a domestic broker. This is the case in any foreign market, of course, and is not exclusive to Malaysia, but is nevertheless something to be considered. The need to make an official complaint against a reputable broker should arise very rarely, if at all, but it is still a possibility you will want to be prepared for.

 

Summary

If you are an online trader, it’s always exciting to consider branching out and exploring new markets and opportunities. And trading in Asia is particularly exciting for many traders in the UK, Europe and the USA. Trading in Malaysia gives you access to a large and interesting stock exchange, in a vibrant economy with a growing GDP. There are complications to trading in Malaysia, and the process is a little involved, with the need to open a CDS account, and the complexities of working with a currency that is not one of the major global currencies. However, for many traders, these are small considerations and worth overcoming in order to expand trading activities and opportunities.