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

Summary of Stock Reviews