THE great thing about Malaysian financial regulators, especially Bank Negara Malaysia (BNM), the central bank, and the Securities Commission Malaysia (SC), the securities regulator, is that the quality and comprehensiveness of their disclosure is second to none.
This includes the major international financial jurisdictions, let alone the 56 Organisation of Islamic Conference (OIC) countries. The SC 2016 Annual Report, released just a few days ago, in this respect, is no exception.
In a world of continued global uncertainty — both political and economic — and volatile markets, the Malaysian capital market remains resilient and sustainable, growing in an orderly trajectory, attracting sound investor interest and serving as a reliable fundraising platform for the government and its agencies, as well as corporates and other entities.
The outlook for the Malaysian capital market in 2017, according to Tan Sri Ranjit Ajit Singh, chairman of the SC, is positive, albeit with the usual caveats, which in this case is simply transcended in five words — Trump, Brexit and China leadership transition.
Of course, the anticipated imminent interest rate hikes by the Federal Reserve will impact the Malaysian capital market like others, especially in cross-border fund flows, and, in the Malaysian case, further exacerbated by the susceptibility of the volatility of the ringgit to the United States dollar. This may be partly mitigated by higher commodity prices, which are traded globally in the greenback.
Armed with several groundbreaking initiatives for this year, the SC is in capacity-boosting mode aimed, inter alia, at strengthening the international positioning of the Malaysian capital market. There are, for instance, through the provisions of the newly-introduced Islamic Fund and Wealth Management Blueprint (IFWMB); the incorporation of an Institute of Directors for Malaysia “to elevate quality, standards and professionalism among Malaysian corporate directors” and to serve as a platform for dialogue between them; the launching of the new Malaysian Code of Corporate Governance to instil global best practises in corporate governance and culture by local companies and their stakeholders; the approval of RM5.95 million by the nascent Capital Market Development Fund aimed at encouraging new entrants into the financial planning industry as well as enhancing investor access and understanding of financial planners and their services; and, the establishment of an Institute for Capital Market Research in 2017 as a world-class centre for new ideas, thought leadership and inclusion innovation as well as a central repository for data and research.
This complements the initiatives by the SC in 2015 and last year, including the introduction of the first Equity Crowdfunding Framework in the region and a peer-to-peer financing framework.
Ranjit is a securities regulators’ regulator. He knows his optimism for the capital market going forward, while rightly steeped in the above initiatives and sentiments and the provisions of the SC 2020 Project aimed at further delivering “high quality regulatory outcomes for the overall capital market and industry”, must be tempered with pragmatism.
But, there can be no room for complacency in an ever-changing global market and economy, and a local capital market industry known for its seemingly entrenched conservatism.
While the size of the Malaysian capital market increased marginally to RM2.84 trillion in 2016 from RM2.82 trillion the year before, what is encouraging is that the Islamic capital market (ICM) share maintained its dominant position, accounting for just under 60 per cent of the total Malaysian capital market. As such, the size of the ICM totalled RM1.692 trillion in last year, more or less the same as the RM1.694 trillion in 2015. Similarly, the size of the conventional capital market totalled RM1.248 trillion, up from RM1.226 trillion for the same period.
The sukuk market is in a resurgent mode. Total sukuk outstanding last year was RM661.08 billion, compared with RM607.93 billion in 2015, which is 56.36 per cent, of total bonds and sukuk outstanding. Similarly, total sukuk (government and corporate) issuance amounted to RM129.45 billion last year, compared with RM117.7 billion in 2015, the annus horribilis of Islamic finance since the 2008 global financial crisis. The market share of sukuk of the total bond and sukuk market was 53.81 per cent, further underlining sukuk resurgence compared with conventional bond issuances.
Only time will tell, Whether the ICM, especially sukuk, is now the preferred method of fundraising for local and Malaysia-based foreign entities. The size of sukuk approved by or lodged with the SC last year totalled RM63.73 billion last year, which is 45.2 per cent of the total sukuk and bonds approved or lodged. It is way up on the RM48.33 billion in the previous year.
With Malaysia and Saudi Arabia, the two largest ICMs, the room for cooperation in cross-border regulation, issuances, disclosure, data compilation, product innovation, syariah governance, cross listing and secondary trading, is huge. Promoting the Malaysian ICM and a reinvented Malaysia International Islamic Financial Centre as the international hub for sukuk origination is a core objective of both the IFWMB and SC.
With sentiments on emerging markets still bullish, especially being the largest contributor to global growth and consumer spending, the Malaysian capital market, especially the ICM, is well positioned to support the financing needs of the economy. The ultimate challenge for capital markets all over is its democratisation so as to equalise access for the whole spectrum of investors, from institutional to family offices to professional retail and ultra retail customers.
The writer is an independent London-based economist and writer