Stockbrokers suffer from low volume
Filed Under (Market News) by Webmaster on 16-03-2009
Tagged Under : Bursa Malaysia, low, malaysia, stockbrokers, volume
GIVEN the current slump in the global economy, fewer investors are interested in share trading, leading to quiet days on the stock market.
Even though all the domestic brokers today had survived the 1997-1998 financial crisis, the slowdown that brokers are facing now is a lot more severe. This is because operating costs have since escalated while brokerage commission rates have decreased significantly.
For Inter-Pacific Securities, Kuok said, the brokerage had begun cutting costs more than six months ago, but the key to survival was still the volume of transactions on Bursa.
“Turnover on Bursa needs to be double the current levels for brokers to be profitable again.
“Already, the Stock Exchange of Thailand has overtaken Bursa in terms of turnover and the Jakarta Stock Exchange is snapping at our heels despite their market capitalisation being lower than Bursa Malaysia’s. We need new and bold initiatives urgently,” he continued.
The less active market, in turn, has affected the performance of local stockbroking firms.
An industry source expects these challenging times for stockbroking firms to continue for the next two years.
“Some of the brokerages, especially ‘stand-alone’ firms, have had no business at all in the past few months,” he told StarBiz.
(Stand-alone firms refer to independent companies that have not merged with any other stockbroking firms although they can be backed by a banking institution.)
These brokerages are struggling to cope with monthly operating costs such as market data fees and some other charges they have to pay to the stock exchange.
“Stand-alone brokerages are not the only ones under pressure now. The larger broking firms are also facing tough times,” the source said. “Basically, all brokerages in Malaysia are not profitable now. In general, if stockbroking firms are to make profits, the daily trading volumes must be above RM1bil.”
The source said these companies, especially stand-alone firms whose activities are limited, were surviving on their reserve funds now.
“But how long can they endure this? No one can predict when the market will recover,” he lamented.
In the past six months, the value of trades on Bursa Malaysia was below RM1bil. From Feb 10 to March 10, the daily trading volume was between 332 million and 594 million shares.
Inter-Pacific Securities Sdn Bhd executive director Kuok Wee Kiat said: “It is unlikely we would find any broker of any stripe breaking even now when comparing brokerage income with direct operating costs.
“Brokers with deeper pockets and other revenue streams will be able to withstand losses longer.”
The Association of Stockbroking Companies Malaysia (ASCM) chairman Datuk Saiful Bahri Zainuddin said the economy was closely correlated to the performance of the stock market.
“Every stockbroking firm is affected in this market condition, regardless of whether they are bank-backed or their size.
“The stockbroking industry is suffering from low trading volumes. All the brokerages probably have not been making money over the past six months.
“However, bank-backed securities firms are perhaps slightly better off compared with the others,” he said in an interview.
Today, there are not many stand-alone brokerages left in the industry. Among them are SJ Securities, Jupiter Securities, Fa Securities (Terengganu), Inno-Sabah, KAF-Seagroatt & Campbell and BIMB Securities.
Saiful said stockbroking firms basically depended on market volumes. If there is insufficient trading volume in the market, there would be an impact in terms of profitability, market share and operational costs.
“The bigger you are, the more you are going to suffer due to higher overheads,” said Saiful, who is also the head of stockbroking at Affin Investment Bank and a board member of Bursa Malaysia Bhd.
Currently, there are 31 member companies in the stockbroking industry including five foreign brokerages.
Saiful said the trading volume had been very low since the second half of last year. – The Star
