Stock Investment in Malaysia

First off, if you’re new to the blog and website, start hERE.

I’ve come across numerous Malaysian individuals who are clueless about how to start stock investment in Malaysia. This post will serve to address all the daunting queries and quandaries faced by the Malaysian public regarding stock investment in Malaysia.

My main investment goal right now is to build a sufficient amount of passive income to cover my expenses. I plan to do long-term value investing with a focus on growth and dividends.

How Stock Investment Works

In Malaysia, stock investing means buying shares of a public-listed company on Bursa Malaysia. You begin by researching companies you want to invest in, opening a brokerage account, and eventually placing your orders. Profits come from rising stock prices and dividends, while broker fees apply. Capital gains are tax-free for individual investors in Malaysia. In a gist, that is stock investment, we’ll get more in-depth throughout the article.

Bursa Malaysia

Bursa Malaysia operates a fully integrated exchange, offering a complete range of exchange-related services including trading, clearing, settlement and depository services. Familiarize yourself with the trading hours of the local market as listed below.

Monday – Friday (except public holidays)

• Pre-Open – 8.30 am – 9.00 am
• Continuous Trading – 9.00 am – 12.30 pm
• Pre-Open – 2.00 pm – 2.30 pm
• Continuous Trading – 2.30 pm – 4.45 pm
• Pre-Close – 4.45 pm – 4.50 pm
• Trading at Last 4.50 pm – 5.00 pm
• Close – 5.00 pm

Investing Terminologies for Bursa Malaysia

1. Share Lots – How Many Shares is One Lot

When investing in stocks in Malaysia, a minimum of 1 lot is required, and 1 lot is equivalent to 100 shares. So, for example, let’s say you decide to purchase 1 lot of Nestle Malaysia, and the share price is RM70. You will be required to fork out a cool RM7,000 for this minimum transaction. This is the reason why some would call Nestle an ‘expensive stock’. However this, to me is a misleading comment as the only thing that is ‘expensive’ about Nestle in this situation is its minimum investment.

Edit: As of September 2019, Nestle Bhd’s share price has more than doubled to RM145 per share.

2. Limit Up and Limit Down

Limit ups and limit downs are price limit rules that restrict how much a particular stock on the KLCI can go up or down in a day.

For KLCI component stocks trading at RM1 per share and higher, the upper limit price is capped at 30% intraday while the lower limit is capped at -15% intraday. For example, an RM1 stock can go up to, at most RM1.30 in a single day. You can still trade it, but it’s capped at RM1.30 throughout.

For stocks whose prices are below RM1, the upper limit is capped at +30 sen and the lower limit is set at -15 sen.

An overall circuit breaker is also in place for the entire KLCI:

• Level 1 is triggered when the FBM KLCI falls by 10% or more but less than 15% from the previous day’s closing. Trading is halted for an hour or for the rest of the day, depending on the time it’s triggered.
• Level 2 is triggered when the FBM KLCI drops by 15% or more from the previous day’s closing, leading to a trading halt for the remainder of the day.

Circuit breakers and limits exist to curb enthusiasm and/or panic. It’s a precautionary measure put in place so that the market can take a breather and slow down. They are especially useful at preventing a free fall and so far, they’re of use and working.

3. Bid and Ask Price

The bid price is the highest price a buyer is willing to pay for a stock.

The ask price is the lowest price a seller is willing to accept.

The difference between the two is called the bid-ask spread. A smaller spread indicates a more liquid stock, while a larger spread suggests lower liquidity.

4. Market Orders vs. Limit Orders

A market order executes immediately at the current price.
A limit order lets you specify a price at which you are willing to buy or sell.

Example: If a stock is trading at RM2.00 and you place a limit buy order at RM1.90, it will only execute if the stock price drops to RM1.90 or lower.

5. Dividends & Ex-Dividend Date

Dividends are payouts from a company’s profits to its shareholders.
Ex-dividend date: You must own the stock before this date to receive the dividend.
Payment date: The date the dividend is credited to shareholders.

6. IPO (Initial Public Offering) in Malaysia

An IPO is when a private company goes public by offering shares on Bursa Malaysia.

Investors can subscribe to IPOs through their brokerage accounts or via MITI allocations (for Bumiputera investors). IPO shares are often allocated at a fixed price before they start trading publicly.

Opening your Stock Investment Trading Account

CDS Account

Firstly, CDS stands for “Central Depository System”, and all CDS accounts are maintained by our very own Bursa Malaysia Bhd. As an individual, one will have the option to create either a Direct CDS Account or a Nominee CDS Account. To cut to the chase, I would advise opening a Direct CDS Account for the Malaysian individual as the only advantage of a Nominee CDS Account is you as a shareholder will not need to worry about the paperwork related to any corporate exercises.

The only exception I would make is for MooMoo and Rakuten Trade’s nominee account. They provide services with no extra fees. Ie. Corporate Actions. 

Your next question will naturally be: “Which broker should I patronize and open my CDS account with?” The answer to this can be found here as I’ve compiled a Comparison of Stock Brokers in Malaysia. I’ve broken down all the suitable brokers available in Malaysia with simple details on the table. Personally, I use MooMoo and Rakuten Trade. I will be using their system as an example throughout my posts.

MooMoo and Rakuten both offer the most convenient way for stock investment in Malaysia. Opening a CDS and a brokerage account can all be 100% done online.

To open my Hong Leong trading account, I had to pay a visit to their office at First Avenue in Petaling Jaya. I’d suggest giving them a call (03-7728 8222) beforehand to determine the documents they need to proceed to avoid having to make multiple unnecessary trips. What I had to bring with me during my trip was my NRIC and verified copies of my savings account.

Cash or Margin Account?

Always a cash account. Unless you’re really experienced and confident in your trading abilities, please DO NOT even consider a margin account. A margin account, also known as a collateralized account allows you to borrow money to buy shares. Your broker charges you interest or higher fees for the right to borrow that money and uses your security as collateral.

Using leverage to buy your shares is very very dangerous because of a clause and event known as a Margin Call.

A margin call is a broker’s demand on an investor to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin (based on their own particular formula).

Basically, if your portfolio value falls below a certain amount, your broker will require you to top up until you reach that threshold. If you don’t they’re going to start selling your shares, at a loss. And it is extremely easy for your portfolio to fall below that threshold because the stock market is so volatile in the short term.

In short, go for the cash upfront account.

How much should I start with?

With Hong Leong Bank as an example, they charge a flat brokerage rate of 0.1% subjected to an RM8 minimum brokerage. With these charges, since you will be charged a minimum of RM8 anyway, the minimum amount you should technically trade at would be RM8/0.1% = RM8,000. This is not including your stamp duty, clearing fees as well as GST.

The stamp duty is charged by the Malaysian government. You will have to pay RM1 for every RM1,000 rounded up to the nearest ringgit subject to a maximum value of RM200.

The clearing fee is charged by the exchange’s clearinghouse – Bursa Malaysia. The fee is 0.03% of the contract value or value of shares subject to a maximum of RM1,000.

In my experience, these fees will set you back by about 0.25% per trade. More if you trade below the minimum threshold of RM8K.

With that in mind, ideally, I would recommend you start with RM8K, but of course, I realize that not everyone starting out is comfortable spending such an amount, which is why the lowest amount one should use to execute a trade would be in my humble opinion RM3K. Worry not if you haven’t got a huge amount set aside, I started small as well, the key is savings.

Dividend Entitlement and Ex-Date

There are four important dates when it comes to receiving dividends:

1. Announcement date: This is when the company announces the amount of dividend to be paid as well as its ex-date and other details.
   
2. Ex-dividend date: To be eligible to receive the dividend, you need to hold your shares BEFORE (not on, or after) the ex-date.
   
3. Entitlement date: This is when the company goes through its records to determine shareholders’ eligibility and entitlement to dividends.
   
4. Payment date: Payday! The date you receive your dividends.

As long as you hold the shares past the Ex-dividend date, you will be entitled to receive dividends. Even if you sell them after the ex-date. However, don’t be misled and mistaken that this is an easy way to earn free money. Usually, stock prices drop immediately after ex-dates.

Picking your stocks

A simple method for stock investment in Malaysia and an early method I used in picking my stocks was to look at products I owned or purchased on a regular basis. For example, while strolling through the grocery aisles, you’d notice that 80% of the products on display are owned by a few major companies. One of them being Nestle. With that, I invested in Nestle early on and have held the stock since then. They provide steady dividends and Malaysians love their Milo, Kit Kat, and Maggi.

Attending a company’s AGM such as Nestle’s will usually provide you with some pretty awesome door gifts. A comprehensive list of door gifts from AGMs can be found here.  This method is as simple as they come and will only work if the stock is held for the long term and it is a steady and huge rock-like Nestle.

If you’re looking for a good place to start, you can begin with a list of top Malaysian companies.

There are tons of other valuation methods out there and I urge you to study them extensively and decide on a few that suit your risk appetite and attitude towards stock investment.

Photo source: philstar.com

Are Capital Gains or Dividends Taxable in Malaysia?

Malaysian investors should count themselves extremely lucky as capital gains from your stocks are not taxable. Capital gain is an increase in your asset’s value ie. Stock value. It is considered to be realized when you sell your stocks. In most parts of the world, if you make a capital gain, you’ll have to pay taxes.

As for dividends, Malaysia practices a single-tier tax system whereby the company paying dividends will have already paid the tax before distributing it to shareholders. When you receive your dividend income, you do not have to pay taxes on them anymore. However, a good practice is to keep your dividend vouchers and declare your dividend income although you do not need to pay taxes on them.

Are stock investment losses tax deductible in Malaysia?

The short answer is No. For individual investors in Malaysia, stock investment losses are not tax deductible because capital gains on stocks are not taxed. However, if you trade stocks as part of a business, those losses might be considered business expenses and could be deductible. Always consult a tax professional for advice tailored to your situation.

End.

My investment philosophy has always been for the long term. And it is my belief that short-term investments will always hurt you in the end.

Please let me know if I’ve failed to address any of your concerns. I hope I’ve at least helped Malaysians feel less daunted by the prospect of investing. I update my dividend income every month and here’s an overview of my entire portfolio – The Freedom Fund.

It has been an incredible and amazing journey for me and I hope, for you as well. I will continue updating this post if and when I come across additional relevant information.

Do you currently have any stock investments in Malaysia?

For the next article of the Investing Series, check out article 002 – The Complete Guide to REITs in Malaysia.

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