One of the ways in which smaller investors try to get an edge over larger investors is in looking for undiscovered gems in the market. These are ones which have been overlooked by larger international investors. If you find a stock that you like, it is often interesting to see how many international investors are on the shareholders register. You can typically find this in the annual report of the company or using services like KLSETracker.

In Malaysia, as is the case on most countries, investors have to buy using brokers who are registered on local exchanges. The broker will open an account for their client, and then also open an account at the KLSE where the shares are traded. Since foreign investors tend to trade through international banks like Citibank, HSBC etc., these banks will open what is usually referred to as “nominee” accounts at the KLSE. Now, that is not the only way to hold shares. It is possible to also hold shares in paper certificate form, and so when that is done, the physical owner has to register with the company registrar. But, it is highly unlikely that you will find a foreign investor who will hold in physical form since they are a hassle to trade.

Anyway, so when companies report on shareholder positions, they will go the KLSE and get a list of accounts which hold their shares and then look at who is registered on their books as holding physical paper. All you have to do is cast your eye down the list for a “nominee” account of some sort, and that is usually a clue. If it’s a nominee account held by an international bank, then that’s a dead giveaway. If you’re really lucky, you may even see the name of the fund itself.

Here’s an example. Earlier I was looking at Melawar, which is trading at around X3.7 forward PE (pretty cheap for a decent ok-lar company) and I was interested to know whether any foreign investors were aware of this counter. Looking on the shareholders register I saw only one: Citigroup Nominees (Asing) Sdn Bhd (Beneficiary: CBNY for DFA Emerging Markets Small Cap Series). Running a Google search, I saw that DFA Emerging Markets Small Cap Series is a long only mutual fund specialising in small caps in emerging countries.

So - what does this tell me? Well, this is not a stock like Genting which has massive foreign investor interest, but is nonetheless on the radar of one foreign investor, so this is small enough to be classed as an undiscovered company and yet you can derive some comfort that other smaller foreign players also rate this as a good buy - which might mean that this stock is starting to get some notice..