Business

Saturday July 18, 2009

Smallcap scheme up for review

By ERROL OH


NOW in its second phase, the CMDF-Bursa Research Scheme (CBRS) should be up for another review soon.

This will determine if the scheme, launched in June 2005, will go on. If it does, there is a chance that it will be in a different form, mainly as a step towards converting it into a self-funding programme.

The aim all along has been to have a scheme that pays for itself, but this depends on the success of the project.

Bursa chief executive officer Datuk Yusli Mohamed Yusof maintains that it is best if the scheme is self-funded.

Datuk Yusli Mohamed Yusoff ...‘We believe that the scheme has met its objectives.’

“Currently, 50% of the cost of CBRS participation is subsidised by the CMDF (Capital Market Development Fund).

“The participating companies are only paying the balance, which is RM30,000 for two years’ participation and coverage by two research houses,” he says in a written response to questions from StarBizWeek.

“An option that we can consider is a tiered programme with different frequencies of coverage and different number of analysts covering the stock.”

Nevertheless, he adds, it would be ideal if listed companies appreciated the importance of investor relations (IR), and allocated time and resources to carry out their own IR activities.

The scheme was established to generate interest in smaller capitalised stocks (smallcaps) by providing a constant supply of research reports on such counters.

With the participation of more than 300 listed companies, the two-year pilot phase of the CBRS ended in June 2007.

“Regular information from continuous analyst reporting and profiling can increase investor awareness on the listed companies and aid towards their investment decisions,” Yusli explains.

The hope is also that the CBRS will spur listed companies to embark on their own IR initiatives to further their profiling among investors.

Lorraine Tan, Asia vice-president of Standard & Poor’s Equity Research Services (S&P), says the CBRS fills a gap because securities firms typically does not cover smaller listed companies.

This is because the stocks have lower traded volumes and broking revenue is tied to trading commissions.

In other words, there is little incentive for the investment banks to offer research on the smallcaps. “Some of the less followed companies offer attractive investment opportunities,” Tan adds.

“In our view, the research also provides an additional tool that investors can use to verify the impact of company developments. This should hopefully improve information transparency and be a means to reduce risks.”

S&P is among the research firms taking part in the CBRS.

A third-party study conducted between June 2005 and June 2006 showed that the scheme did have some influence over trading volumes of the stocks covered.

Says Yusli: “It indicated 41% occurrences of increased trading volumes on average in the one-month period following the release of a research report on a given counter. The impact over a one-year time-frame was even greater, with 56% occurrences of increased trading volume after the release of the research reports.”

Phase 2 began in August 2007 – this means the two-year mark is coming up fast – and companies have joined the scheme on a staggered basis.

Under the second phase of the CBRS, the distribution channels for the research reports have been widened to include Bloomberg and Thomson Reuters.

Participating research houses and the Securities Investors Association Singapore have also created hyperlinks from their websites to the Bursa’s eResearch website.

Following feedback from users, Bursa disabled the log-in requirement for the eResearch website in May, thus allowing anybody to view and download the research reports without having to register or log in.

“With respect to the continuation of the scheme, we will have to conduct a review at the end of the period before making any decisions,” says Yusli.

If it was up to the participating listed companies, chances are the CBRS will be extended.

A recent Bursa survey of the companies under the scheme found that more than 80% of the respondents are satisfied with the scheme. Over 90% agreed that the CBRS has helped them in profiling to investors.

“We believe that the scheme has met its objectives and has benefited the participating companies, investors and research houses,” Yusli declares.

“Ultimately, it is not about ensuring that this scheme continues running on a long-term basis, but just as an avenue to ensure that the smaller capitalised companies are researched by analysts and that these companies themselves understand the importance of ongoing IR to investors.”

  • E-mail this story
  • Print this story