Malaysia is a high-middle-income country, with residents boasting a growing level of disposable income. With money to spend, the question that naturally comes to mind is how to make the most of it. One way to build and preserve wealth is through the stock market.
In this article, we’ll delve into ways for Malaysians to pick stocks, how to buy shares on the international markets, gain exposure to the national stock market, tips for choosing a stock broker to buy shares, opportunities for foreigners to gain exposure to Malaysian shares, and more!
Choose a stock to buy
Since there are tens of thousands of public companies around the world, there is no silver bullet when it comes to choosing a stock to purchase. That said, generally, companies are divided in two ways:
- Value stocks: these companies are usually attractively priced in terms of price-to-earnings or other ratios but face slower growth going forward;
- Growth stocks: these companies offer a high long-term growth rate but are more expensive from a valuation perspective in the near term.
You can favour one type or diversify across both value and growth, with value companies in your portfolio to meet medium-term goals. In contrast, growth companies should be able to help you achieve your long-term aspirations!
Resources you can use are:
- Stock screeners such as Finviz
- Company reports, filings and presentations
- Macroeconomic and industry publications
In any case, make sure to consider several companies, evaluate their performance relative to competitors, and try to pick the most attractively priced business!
How to buy shares on the international markets (Step-by-step guide)
1. Choose a good stock broker
Once you have chosen the stock you want to invest in, you need to find a broker where you can make the purchase. Make sure the broker you pick works with residents of Malaysia. Below we highlight 2 solid choices available to Malaysians:
|Broker||Stock commission, US||Minimum Deposit||Regulators|
|Interactive Brokers||USD 0.005 per share with a minimum of USD 1.00||€/$/£0||FINRA, SIPC, SEC, CFTC, IIROC, FCA, CBI, AFSL, SFC, SEBI, MAS, MNB|
|Saxo Bank||USD 0.02 per share with a minimum of USD 10.00||$0 to $10,000 (varies between countries)||ASIC, FSA, FCA, SFC, MAS, FINMA, DFSA|
|Tiger Brokers||Commission fee: 1 USD per order. Platform fee: 1 USD per order. Other fees apply.||S$1||MAS|
2. Open and fund your account
Once you have weighed the pros and cons of each broker, you are all set to open an account. The process usually takes a few days as the broker verifies your identity. After the process is finalised, you must deposit money into your account.
3. Place a “Buy Order”
If you have found an online broker that suits your needs, managed to open an investment account, and made the initial deposit, you are all set to buy your stock. All you have to do is find the share within your chosen broker and place a buy order. For this example, we will use Interactive Brokers Trader WorkStation (TWS).
1 – Search for the chosen stock (we will use Apple, ticker “AAPL”):
2 – Click “Buy”:
3 – Choose the order details. Now, it’s time to fill all boxes highlighted below:
- QTY: Short for quantity. Here you define the number of shares you want to purchase;
- Type of order: By default, Interactive Brokers sets your order type as LMT, short for Limit Order. This is good since it allows you to set a maximum price at which you are willing to buy the shares. The alternative is MKT or market order.
- Limit Amount: Assuming you kept the “LMT” as the type of order, you need to set the maximum price you are willing to pay per share. If you use Market order, you do not need to fill this and will buy at the best available Ask price.
- Order duration is set to DAY by default.
4 – Place the order:
Finally, click “Submit,” and a new window will show up. Here, you can take a final look at all the details, including the commissions, before clicking “Transmit”:
ETFs – an alternative way to gain exposure
ETFs, or exchange-traded funds, allow you to gain exposure to a dozen or even hundreds of companies with a single investment. ETFs can be a good option if you:
- Are unsure which specific stock to choose.
- Want to limit your portfolio volatility (usually ETFs invest in companies in different sectors which are affected by vastly different factors, limiting your exposure to idiosyncratic risks).
- Are interested in following a specific theme in your investments (Malaysia stocks, technology stocks, real estate stocks, etc).
Some ETFs you may want to consider are:
- iShares MSCI Malaysia ETF (ticker EWM), which tracks 34 components of the MSCI Malaysia Index.
- iShares MSCI Emerging Markets Asia ETF (EEMA) which has over 900 holdings, mainly in China, Taiwan, India and South Korea, but also 1.87% in Malaysia.
You are free to choose from thousands of ETFs investing all around the world.
Buying stocks on Bursa Malaysia
There are over 2,000 shares available for trade on Bursa Malaysia. If you want to invest in the safer part of a company’s capital structure, namely its bonds, the local market also offers that option.
The main benefit of buying shares on the local market is that you will not incur foreign exchange conversion fees from opening an account in USD, JPY or any other currency. This is because shares on Bursa Malaysia trade in Malaysian ringgit. If you buy Apple stock, you would have to:
- Sell ringgit, and buy USD to open the trade
- Sell USD, and buy ringgit to close the trade
Thus you would incur two foreign exchange fees in the process.
The downside of the local market is that you are limited to the instruments available to trade there, many of which are tightly correlated with Malaysia’s economic fortunes. Thus if you want to diversify your wealth across the world, the best way is to invest overseas or pick an export-oriented company.
Accessing Malaysian equities as a foreigner
Suppose you are an investor outside Malaysia and want to gain exposure to the country’s growth potential. In that case, the most straightforward way to buy Malaysian equities is through an ETF, as highlighted above. The downside is that country-specific ETFs usually have a higher expense ratio compared to the ETFs for developed markets such as the United States. Thus you must carefully evaluate whether the excess return you expect will cover the higher ETF costs!
If you want to buy a specific Malaysian company, the best way would be to get in touch with one of the leading brokers listed above. The drawback is that you will have to incur foreign exchange fees.