Here’s another one. Let me give you a recent quote from a global investment bank on Bursa to illustrate my point:

“We note that Bursa’s valuation remains attractive vis-a-vis regional peers at 25.4x (HKSE 75.6, SGX 51.0x, ASK 25.6x)”

One of the questions I always ask when comparing companies is: “Why is the market discounting such a counter?” Sometimes for companies which are not covered by global investment houses this is because it has been overlooked by the investment community and I would buy it. But Bursa? This is a counter which is heavily covered globally and you can bet your dollars that the international community is aware of this share. After all, how many exchanges does Malaysia have? This is a counter which is definitely not overlooked. So the next question is: if it is not, then why is is so cheap?

The answer lies at the heart of our legal and government system and explains why most companies are undervalued by that standard. Just take a step back and ask yourself, if both the Malaysian exchange and the Singapore exchange were trading at identical prices, and I had to buy one, which would it be? The question, undeniably, is Singapore. Why? Put simply, the exchanges in Singapore, Hong Kong and all these other countries operate in a free market. They may be potential targets for foreign acquisition or other similar business activity. And if you think that your company has the ability to grow its earnings inorganically (i.e. not just through growth in sales revenue, but through other corporate means, like mergers and takeover activities) then you will give it a premium. Unfortunately I do not think that the Malaysian government will allow non Malaysians to get in on the action for Bursa. I just cannot see it merging or being taken over by another non-Malaysian exchange, for example. Our government just doesn’t encourage that kind of capitalism. That is why it is trading at a discount. They don’t tell you this in trading books because they all assume that the market environment is free and uniform. Don’t make the same mistake.

Conclusion: Apples are apples and oranges are oranges. Try to distinguish them where you can.