Malaysia said on Thursday said it would partly lift its ban on short-selling of shares, introduced during the 1998 Asian financial crisis, to attract more liquidity to the country’s sluggish stock market.
The ban on short-selling was one of the first measures Malaysia introduced in 1998 to help curb an outflow of capital. Then prime minister Mahathir Mohamad had accused speculators of being “racists” who sought to impoverish the country.
Other measures such as pegging the Malaysian currency, the ringgit, to the US dollar and local funds being banned from investing abroad have been removed.
The Malaysian market has been the worst performer in Asia over the past 12 months, with turnover declining sharply.
Bursa Malaysia, the stock exchange, has been lobbying the government to lift the ban on short-selling.
“The environment is now conducive to announcing that regulated short-selling and securities borrowing and lending will be reintroduced in the domestic market,” said Nor Mohamed Yakcop, Malaysia’s second finance minister.
Short-selling will be limited to less than 100 stocks out of the nearly 1,000 listed on the exchange.
Analysts have welcomed the move because it will bring Bursa Malaysia closer to other developed markets, while opening the way for the introduction of financial instruments such as derivatives and options. It will also align Bursa Malaysia with the Singapore Exchange, with which it is setting up a common trading platform.
The concession on short-selling might be linked to an admission yesterday by the head of Khazanah Nasional, the government investment agency, that corporate reforms in the state industrial sector might take five to 10 years.
Optimism over restructuring of state companies, which make up a third of the market capitalisation of Bursa Malaysia, helped drive up share prices in 2004 when it was announced. But foreign interest has dwindled since then because progress appeared to be stalled.
Bursa Malaysia has recommended that the government sell its stakes in local companies to increase liquidity. Mr Nor Mohamed seemed to rule that out yesterday.
“We are in value-creating mode. It is not our focus to be selling stakes in government-linked firms now. We have great belief that we can create value in our companies at this time,” he said.
Malaysia said it would amend stock exchange listing rules to encourage more foreign companies to list.
Get alerts on Malaysia when a new story is published