PETALING JAYA: South-East Asia’s strong growth potential continues to place regional markets, including Malaysia, as an investor favourite in the second half of 2023 (2H23), based on the number of initial public offerings (IPOs) recorded in 1H23, according to Deloitte Malaysia.

The audit and financial advisory firm said foreign direct investment (FDI) has increased due to the region reopening its doors, the restoration of tourism industry and booming domestic demand.

These factors have provided a springboard for economic growth in the region despite the global economic uncertainties, it added.

Bursa Malaysia has continued with its IPO momentum after having carried out 16 listings in 1H23, about the same amount of listings executed in the same period of last year.

“Although the proceeds raised by these IPOs in 2023 have dropped by 22% year-on-year (y-o-y) to RM1.6bil compared with the RM2.1bil raised last year, the IPO market capitalisation has surged 42% to RM9.6bil,” said Deloitte Malaysia in its latest research review on South-East Asia Mid-Year IPO Snapshot.

Deloitte Malaysia Disruptive Events Advisory leader Wong Kar Choon revealed that the IPO of property developer Radium Development Bhd and electronics manufacturer Cape EMS Bhd in 1H23 were among the top 10 listings in South-East Asia, with a combined total of RM667.7mil proceeds raised.

Compared to the corresponding period of 2022, he said the local stock exchange also oversaw 16 listings, which raised about RM2.1bil, mostly due to the presence of a strong heavyweight, dairy group Farm Fresh Bhd.

It is also interesting to note that Bursa Malaysia had set a target of 39 IPOs with a market capitalisation of RM10bil this year.

While it appears as though the exchange has fallen marginally behind in terms of the number of new listings, Deloitte Malaysia said Bursa Malaysia is targeting for seven IPOs for the Main Market in 2H23, with another 14 IPOs for the ACE Market, on top of coming fractionally close to achieving the expected market capitalisation before July.

Deloitte’s Wong believes that these data show continued investor confidence in the local capital market, with a proven track record for business, especially evidenced by most of this year’s 16 IPOs that have achieved high oversubscription rates, underpinned by support from both institutional and retail investors.

“The recent announcement by the Prime Minister on capital market competitiveness has provided substantial positive messages for stakeholders in the capital market, which include the reduction of stamp duty rates for the trading of listed shares on Bursa Malaysia and a re-look at policies to attract and widen the pool of investors,” Wong said.

While there could always be negative sentiment in the market, he said the IPOs in Malaysia have shown that the right companies can continue to raise funds and attract investors, especially with the introduction of the Madani Economy framework by the unity government.

As such, Wong believes good technology-enabled companies will continue to obtain the funds they need for expansion, be it through an IPO or by private equity funding.

“South-East Asia’s positive growth outlook is making the region an investor favourite.

“There continues to be an influx of foreign direct investment due to the region reopening its doors, the restoration of the tourism industry and a booming domestic demand.

“Together, these factors have contributed to the economic growth in the region despite the global uncertainties,” Wong noted.

The growth factor also resonates with Rakuten Trade head of equity sales Vincent Lau, who is of the opinion that the IPO vigour could be carried on for the rest of 2023, assuming the results of the six state elections tomorrow maintains a status quo.

Lau also believes that if Malaysia’s political situation remains stable, equity markets should rally, especially with his expectation for the US Federal Reserve to maintain its fund rate after the recent 25-basis-point hike in July.

“There are several countries with huge growth potential in South-East Asia such as Vietnam, Thailand, Indonesia as well as Malaysia and of course, China, because most of these nations are still seen as emerging markets by investors,” Lau told StarBiz.

Meanwhile, an analyst with a bank-backed brokerage opined that the performance of a newly-listed entity heavily depends on “which market the listing takes place and which sector the company is in”.

“A listing on the ACE Market is a different ball game compared with a listing on the Main Market of Bursa Malaysia.

“Another factor is whether institutional investors are able to invest in a certain company that has been recently listed because placements for these two markets attract different participants,” he said.

The analyst told StarBiz that investors could be looking forward to a couple of Main Market listings in 2H23 that he believes could influence the direction of the local bourse to a certain extent.

Apart from the nature of business of the listed company, he said the IPO valuations, products and services offered as well as the fundamentals of a new company on the stock exchange would also be critical in attracting investors.

This somewhat echoes Wong’s perspective that technology companies are anticipated to do well.

On a separate note, the analyst added: “We believe that in terms of number of IPOs, going forward, Bursa Malaysia should be quite accurate in its estimation, as many of these companies have begun their listing processes that were interrupted by the lockdowns in the past three years.

“So, the pipeline should continue coming through in 2H23.”

Meanwhile, Deloitte’s Wong said South-East Asia’s capital market as a whole has achieved 85 IPOs in 1H23, raising US$3.3bil (RM15bil) in proceeds, while IPO market capitalisation stood at US$20.1bil (RM138bil).

This is compared with 73 IPOs, US$3.1bil (RM14bil) proceeds raised and US$35.4bil (RM162bil) IPO market capitalisation achieved in 1H22.

He also said Indonesia had continued with its good run from 2022, with its IPO market having the best results to date in the region, raising about US$2.3bil (RM10.5bil) from a total of 44 IPOs.

“This is followed by Thailand at US$528mil (RM2.4bil), Malaysia US$363mil (RM1.6bil), the Philippines US$66mil (RM301mil) and Singapore US$33mil (RM151mil).

“Being South-East Asia’s largest economy and a nation with one of the world’s largest populations, Indonesia continues to see massive and increasingly profitable IPOs,” he added.

Wong also noted that the largest IPO in South-East Asia in 1H23 came from Indonesia’s PT Trimegah Bangun Persada Tbk, which raised US$683mil (RM3.1bil) and reached a market capitalisation of US$5.4bil (RM24.7bil).