Sunday, 14 June 2015

Malaysia Deposit Rate Vs Malaysia Stock Index (1980-2014)


Introduction
All risk adverse investor would like to gain maximum return from the risk their take. Shall investor in Malaysia place their money at bank deposit (risk free rate) or invest in Malaysia stock market?


Comparison between Malaysia Deposit Rate and Malaysia Stock
Let us explore these options. Table below shows the Malaysia Deposit Rate and Malaysia Stock Index from 1980 to 2014. The Malaysia Deposit rate is data obtain from The World Bank webpage  and the Malaysia Stock Index values are the closing price on 31 December each year, estimated from Trading Economic KLCI chart.

Year
Malaysia Deposit rate* (%)
Malaysia Stock Index**
Percentage change in Stock Index (%)
1979
-
205

1980
6.2
306
75.61
1981
9.7
370
2.78
1982
9.8
290
-21.62
1983
8.0
400
37.93
1984
9.5
305
-23.75
1985
8.8
220
-27.87
1986
7.1
250
13.64
1987
3.0
260
4.00
1988
3.3
355
36.54
1989
4.6
560
57.75
1990
5.7
510
-8.93
1991
7.1
560
9.80
1992
7.9
645
15.17
1993
7.0
1250
93.80
1994
4.9
990
-20.8
1995
5.9
995
0.51
1996
7.1
1240
24.62
1997
7.8
600
-51.61
1998
8.5
600
0.00
1999
4.1
810
35.00
2000
3.4
675
-16.67
2001
3.4
700
3.70
2002
3.2
650
-7.14
2003
3.1
790
21.54
2004
3.0
910
15.18
2005
3.0
900
-1.10
2006
3.1
1090
21.11
2007
3.2
1430
31.19
2008
3.1
890
-37.76
2009
2.1
1280
43.82
2010
2.5
1520
18.75
2011
2.9
1540
1.32
2012
3.0
1690
9.74
2013
3.0
1860
10.06
2014
3.0
1760
-5.38
Geometrical Mean
(1980-2014)
5.14

6.34
Geometrical Mean
(1980-1989)
6.97

10.57
Geometrical Mean
(1990-1999)
6.51

3.76
Geometrical Mean
(2000-2009)
3.31

4.68
Geometrical Mean
(2010-2014)
2.88

6.58
NOTES:
*data obtained from The World Bank
** data obtained from Trading Economic 

From the data above, overall the Malaysia stock index beat the bank depositary rate by 1.2 %. From the ten years geometrical mean only from year 1990 – 1999 where the market did not beat the depositary rate. The period 1990 – 1999 is the range of the years where Asia financial crisis was in (1997). During 1997, the Malaysia stock market fall a dramatic – 51.61 the worst fall in Malaysia history.

Even with the worst decade, investor still able to have 3.76 % return if their trade the exchange traded fund (ETF) that track the index from 1990 – 1999 while the worst return for a depositary rate is 3.31% which is from 2000 – 2009. Please bear in mind the stock index does not included any dividend pay by the companies hence the return from the ETF might be higher that what it is stated.

Compounded Return
Now let’s look at what is the compounded return if an investor invested RM 10,000 in a fixed deposit compared to a stock from time period 1980-2014, 1990-2014, 2000-2014.

Year
Invested in 1980
Invested in 1990
Invested in 2000
Bond (RM)
Stock (RM)
Bond (RM)
Stock (RM)
Bond (RM)
Stock (RM)
1980
10,620.00
17,560.00




1981
11,650.14
18,048.78




1982
12,791.85
14,146.34




1983
13,815.20
19,512.20




1984
15,127.65
14,878.05




1985
16,458.88
10,731.71




1986
17,627.46
12,195.12




1987
18,156.28
12,682.93




1988
18,755.44
17,317.07




1989
19,618.19
27,317.07




1990
20,736.43
24,878.05
10,570.00
9,107.14


1991
22,208.71
27,317.07
11,320.47
10,000.00


1992
23,963.20
31,463.41
12,214.79
11,517.86


1993
25,640.63
60,975.61
13,069.82
22,321.43


1994
26,897.02
48,292.68
13,710.24
17,687.57


1995
28,483.94
48,536.59
14,519.15
17,767.86


1996
30,506.30
60,487.80
15,550.01
22,142.86


1997
32,885.79
29,268.29
16,762.91
10,714.29


1998
35,681.06
29,268.29
18,187.76
10,714.29


1999
37,144.01
39,512.20
18,187.76
14,464.29


2000
38,406.91
32,926.83
19,577.19
12,053.57
10,340.00
8,333.33
2001
39,712.74
34,146.34
20,242.81
12,500.00
10,691.56
8,641.98
2002
40,983.55
31,707.32
20,890.59
11,607.14
11,033.69
8,024.69
2003
42,254.04
38,536.59
21,538.19
14,107.14
11,375.73
9,753.09
2004
43,521.66
44,390.24
22,184.34
16,250.00
11,717.01
11,234.57
2005
44,827.31
43,902.44
22,849.87
16,071.43
12,068.52
11,111.11
2006
46,216.96
53,170.73
23,558.22
19,464.29
12,442.64
13,456.79
2007
47,695.90
69,756.10
24,312.08
25,535.71
12,840.81
17,654.32
2008
49,174.47
43,414.63
25,065.75
15,892.86
13,238.87
10,987.65
2009
50,207.14
62,439.02
25,592.13
22,857.14
13,516.89
15,802.47
2010
51,462.31
74,146.34
26,231.94
27,142.86
13,854.81
18,765.43
2011
52,954.72
75,121.95
26,992.66
27,500.00
14,256.60
19,012.35
2012
54,543.36
82,439.02
27,802.44
30,178.57
14,684.30
20,864.20
2013
56,179.66
90,731.71
28,636.52
33,214.29
15,124.82
22,962.96
2014
57,865.05
85,853.66
29,495.61
31,428.57
15,578.57
21,728.40
Gain (%)
578.65
858.54
294.96
314.29
155.79
217.28
Different

27988.61

1932.96

6,149.83

The above table showed that, either invest RM 10,000 in 1980, 1990, or 2000. The stock market outperformed the fixed deposit. Besides that the longer the period the money is invested the higher the return.

Conclusion
In conclusion, invest in stock market for long term (>10 years) will be better option compared to place the money in fixed deposit rate. Moreover now the fixed deposit interest rate is much more lower compared to 20 years ago.

For those who have no ideas how to pick a stock can buy exchange trade fund (ETF) that track the KLCI, the FBMKLCI-ETF (0820EA). An investor only required minimum knowledge on stock investment (that is how to buy and sell a stock in Bursa Malaysia) when buying an ETF since it trade the indexes passively. There are a few more ETFs available in Malaysia which trade the oversea market such as china. Bursa Malaysia even has Shariah compliance ETFs for the muslim investors and others as well. Shariah compliance shares are usually safer because they have some criterials to meet before classified as Shariah compliance therefore non – muslim also might like to look into the Shariah compliance shares.

For retirees who do not have any active income, I would recommend to invest in fixed income ETF because these type of ETF have less risk to loss the capital that invested into it and usually pay out dividends semi-annually.

As for young investors like me who are working and have some money to invest shall try to study on how to become a value investor and start invested in undervalued stocks. Value and long term investor usually are outperformed the market, of cause there are always risk involved in the stock market. You are not advises to buy shares on margin, only invest in extra fund. With today internet, we can learn value investing easily. Just spent most of your DOTA times to learn about value investing which will help you to earn money in the future.


NOW PUT AWAY 10 % OF YOUR INCOME TO INVEST IN STOCK MARKET