DPM Lee's Reply to Parliamentary Question: Status of Clob Shares Held by Singaporeans
Issues Raised in Parliament ANSWER TO PARLIAMENTARY QUESTION ON: For Parliament Sitting on 06 May 1999 Question: Q To ask the Deputy Prime Minister whether he will give an update on the status of negotiations with the Malaysian government on the US$2.6 billion worth of frozen Central Limit Order Book (CLOB) shares. To ask the Deputy Prime Minister what is the progress in engaging a private fund manager to manage public funds. Answer: Interest in Malaysian and Singapore shares1 Mr Heng Chiang Meng asked whether past investor interest in Clob Malaysian shares would now go to the KLSE, since Malaysian shares are no longer traded on Clob; or whether this investor interest will migrate to the SES. 2 Retail investors actively traded Clob Malaysian shares for two main reasons. Firstly, historically close ties between the two countries gave Singapore retail investors a keen interest in Malaysian companies. They wanted to invest in Malaysian companies even after the KLSE and the SES parted ways in 1973 and Malaysian counters were delisted from the SES in 1990. And secondly, Clob made it much more convenient for Singapore investors to buy Malaysian shares. Investors here could transact in S$ without being exposed to foreign currency risk; and they could deal through Singapore brokers, with whom they were more familiar. This was why Clob was successful. 3 Since the cessation of the trading of Malaysian shares on Clob in Sep 98, retail investor interest has shifted to Singapore shares listed on the SES. This can be seen from the increase in the turnover on SES. From Oct 98 to Mar 99, SES recorded an average monthly turnover of S$9.8 billion. This figure, without Clob trading, is 63% higher than the average of S$6.0 billion per month transacted in the same shares during the 8-month period (from Jan 98 to Aug 98) before Clob ceased trading in Malaysian counters. The main reason is loss of convenience with the closure of Clob and the imposition of capital controls in Malaysia. S$ billion
4 It therefore appears that investors on Clob have for now shifted their interest from Malaysian to Singapore shares. 5 There have been accusations that Clob investors shorted Malaysian shares, and were responsible for the collapse of the Malaysian stock market. But very few institutions invested in Malaysian shares through Clob. SES figures confirm that an overwhelming majority (more than 98%) of Clob investors were individuals rather than institutional investors. 6 A recent comprehensive analysis by the Singapore Business Times, based on data obtained from SES, conclusively refuted the charge that Clob caused the decline in the KLSE. I have circulated the full BT analysis to members. 7 BT found no evidence of significant short-selling on Clob. Judging by share buy-ins by SES, short-selling of Clob shares had been negligible. BT also analysed trading data on the three days each year which showed the largest falls in the KLCI, for the last five years. It found few Clob counters among the top 30 losing stocks on those days. Further, turnover in these Clob counters was much lower than the corresponding turnover on the KLSE- generally less than 5% of KLSE turnover for the same counters. This is hardly the picture of rampant short-selling on Clob. 8 BT studied more closely the period from the end of 1996, before the Asian crisis, up to 31 August 98, just before Malaysia imposed capital controls. I will distribute a chart showing how over this period Clob holdings of Malaysian shares rose steadily, even as the KLCI declined continuously and steeply together with other regional stock indices. The KLSE Composite Index (KLCI) lost three quarters of its value, falling from 1238 on 31 December 96 to 302 by 31 August 98. But Clob investors doubled their holdings of Malaysian shares, from 5.7 billion on 31 December 96 to 11.7 billion on 31 August 98. Their holdings increased steadily quarter by quarter, despite the decline of the KLCI and the deepening economic crisis in the region and in Malaysia. The sell-down of Malaysian shares did not take place in Singapore. |
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