KLSE (Malaysian Stock Index) Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The Kuala Lumpur Composite Index (KLCI), recently renamed the Bursa Malaysia, was introduced on the Malaysian Stock Exchange in 1986 to provide a performance indicator for the share prices similar to those that exist on other stock exchanges. Under the British, the colonial power in Malaya (as it was then called), most companies operating in the peninsula were traded on the London Stock Exchange until the establishment of the Malayan Stockbrokers’ Association that traded mainly in shares of rubber and tin companies, rubber and tin being the major exports of Malaya. The public trading of shares on the Malayan Stock Exchange started in 1960 when a group of brokers were brought together in Kuala Lumpur, then opened another trading floor in Singapore the following year—the two being connected by telephone and thus being a single market with a single set of prices in both places. In 1964 it became the Stock Exchange of Malaysia, and in the following year (when Singapore became independent), the Stock Exchange of Malaysia and Singapore—remaining as such until 973 when currency interchangeability ended and the exchange split into the Kuala Lumpur Stock Exchange Bhd. (KLSEB) and the Singapore Stock Exchange.

Prior to the establishment of the KLEI in 1986, the measure of the performance of shares on the KLSEB was shown by the Fraser’s Industrial Index. This had its origins in the firm Fraser & Company, a part of the trading group Fraser & Neave, which had been a dominant force in the early days of share-trading in Singapore, and was effectively the stock exchange for Singapore (where shares for British Malaya were also traded) until the establishment of the stock market in Kuala Lumpur in 1960. Because of its history, the Fraser’s Industrial Index continued in use for many years.

In 1985, the year before the introduction of the KLCI, the Fraser’s Industrial Index for Kuala Lumpur hovered around the 3,000 level as the Malaysian government sought to introduce their New Economic Policy and give members of the Malay ethnic group a greater percentage of shareholdings, with laws stipulating that there needed to be 70 percent local shareholding. In 1987, using the Fraser’s Industrial Index, the market fluctuated wildly, running from around 2,000 at the start of the year, up to a peak of 5,500 by the middle of the year, and then back to roughly where it had started by the end of December. This was one of the reasons for the introduction of the KLCI.

Within a couple of years of its introduction, the KLCI was providing a good measure of the performance of the KLSEB, running at levels between 300 and 400. The Far Eastern Economic Review, the well-respected Hong Kong–based finance and news magazine, started quoting it regularly, and described it as being “widely watched,” largely because it had a far wider base than the Fraser’s Industrial Index, noting its movements were in tune with many of those on Wall Street. The magazine in 1989 called the KLSEB the “darling of foreign institutional investors,” and also noted that the KLCI was closely following the changes in shares in tin in the country, as well as fluctuations in industrial and commercial stock, far more than shares in companies concerned with property or finance. On August 13, 1989, it reached a peak of 515.09, and was not that much affected by the crash in property stock in August 1990. In 1993 the KLCI reached a peak of 1,275.32, the highest it had reached up to that point.

In 1994 the KLSEB renamed itself the Kuala Lumpur Stock Exchange (KLSE), and in 1995 the KLCI was increased to include 100 companies from the stock exchange’s Main Board, which had about 500– 650 companies. The 100 were chosen because of their importance in the market, and also because they reflected a range of sectors of the economy. The index is capitalization-weighted; thus, rises or falls in the prices of companies with larger market values have a proportionally greater impact on the movement of the index.

The biggest fall in the KLCI came in 1997 when, during the Asian financial crisis, the index fell more than 500 points in six months. By August 1998, it had fallen to 261.33, the lowest it had ever been. However the underlying economic indicators showed that the country was relatively robust, and it had managed to weather the Asian financial crisis, and by 2000, the KLCI reached 974.38, after a massive surge in share prices through investment opportunities and speculation.

The KLSE was renamed the Bursa Malaysia in 2004, and the KLCI managed to reach 1,000 in November 2006, the highest it had been in six years. Throughout 2007, it rose steadily as the Malaysian economy continued to improve, surpassing its previous record on April 9, 2007, when it closed at what was then its all-time high of 1,298.3. On May 3, 2007, it reached 1,342, rising to 1,386.67 on June 20, and closing at 1,410 on October 29. Since then it fell, including a dramatic 9.5 percent drop after the government faced a major setback in the general election on March 8, 2008—an election that saw its majority in parliament reduced significantly.

Bibliography:

Kam C. Chan, Benton E. Gup, and Ming-Shium Pan, “An Empirical Analysis of Stock Prices in Major Asian Markets and the United States,” Financial Review (v.27/2, 2005);
Sally Cheong, Changes in Ownership of KLSE Companies (Corporate Research Services, 1995);
Mohd Azlan Hashim, “Kuala Lumpur Stock Exchange: Ensuring Competitiveness in the New Millennium,” in Michael Yeoh, ed., 21st Century Malaysia: Challenges and Strategies in Attaining Vision 2020 (ASEAN Academic Press, 2002);
Alowi Ismail, The Capital Market and the Economy (Bank Negara Malaysia, 1993);
Annuar Md Nasir, The Efficiency of the Kuala Lumpur Stock Exchange: A Collection of Empirical Findings (Penerbit Universiti Pertanian Malaysia, 1993);
Hong Rim and Rosle Mohidin, “On the Dynamic Relationship between Exchange Rates and Industry Stock Prices: Some Empirical Evidence from Malaysia,” Journal of Applied Business Research (v.21/4, 2005);
The K.L.S.E. Moves into the Future 1870–1987 (Kuala Lumpur Stock Exchange, 1987);
Othman Yong, The Malaysian Stock Market and You: A Guide to Wise Investment in the Stock Market (Leeds Publications, 1995).

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