Malaysia Capital market grew by 10.5% to RM2.7 trillion
The Malaysian capital market grew by 10.5% to RM2.7 trillion in 2013, said the Securities Commission Malaysia (SC) in conjunction with the release of its annual report. Key market segments recorded steady growth on the back of robust domestic fundamentals. The market also remained resilient despite volatility which affected emerging markets globally.
The bond market ended the year at RM1.0 trillion and maintained its position as the third-largest in Asia relative to GDP. Equity market capitalisation grew to RM1.7 trillion with the benchmark index rising 10.5%, making the market one of the top performers in Asia. Significant gains were also recorded by the domestic small-cap index (+36.7%) following increased participation by institutional funds and greater interest by retail investors.
The capital market continued to be a major source of financing with RM94 billion raised through corporate bonds and initial public offerings (IPOs). Bond issuances accounted for 91% of financing raised. The breadth and depth of the market underpinned the strongest period of capital-raising on record with a total of RM240 billion raised over the last two years.
The fund management industry continued to play an important role in mobilising domestic savings, with assets under management (AUM) growing by 16.5% to RM588 billion. Unit trust funds continued to be the largest contributor to the growth in AUM, with net asset value (NAV) increasing to RM336 billion, equivalent to one-fifth of stock market capitalisation.
Creating greater opportunities for internationalisation of the Islamic capital market
The Islamic capital market grew by 8.8% to RM1.5 trillion, with Shariah-compliant assets representing 56% of the overall capital market. Malaysia maintained its leadership role as the world’s largest sukuk market, accounting for 69% of global sukuk issuances in 2013. A revised Shariah screening methodology for listed equities was implemented in November 2013 to further increase the attractiveness of Malaysia’s Islamic equity and fund management segments to international investors.
In facilitating greater cross-border Islamic capital market opportunities, the SC continued to work with other regulators and international institutions. A memorandum of understanding was signed with the Autoriti Monetari Brunei Darussalam and discussions on bilateral cooperation have been initiated with Saudi Arabia to encourage, among others, greater cross-border activities and collaboration in the Islamic capital market. These initiatives further build onto existing arrangements with Hong Kong and Dubai.
In addition, SC collaborated with the world-renowned International Institute for Management Development (IMD) Lausanne and the prestigious Oxford Centre for Islamic Studies (OCIS) towards furthering thought leadership on Islamic finance. These resulted in the publication of case studies on sukuk issuances with IMD and intensive discourse on an all-encompassing Shariah-based approach as well as applied research on harmonising Shariah rulings with OCIS.
Safeguarding confidence in the integrity of the market
Recognising the growing complexity of the market and the need for more timely regulatory interventions, SC implemented measures to further strengthen its supervisory and enforcement capabilities.
Systemic risk management was enhanced through the operationalisation of a dedicated Supervisory Specialist Risk Group (SSR), the adoption of a purpose-built stress-testing methodology developed in collaboration with the International Monetary Fund (IMF), as well as the strengthening of our oversight framework for systemically important firms.
A total of 44 examinations and engagements were conducted to detect areas for improvement under SC’s risk-based approach to intermediary supervision. As a result, market intermediaries continued to be well-capitalised, with their prudential soundness and standards of conduct further strengthened by improvements to their operational, risk management and compliance standards.
SC’s enforcement efforts play a critical role in safeguarding market integrity and confidence, and in 2013 a wide range of enforcement tools, including criminal prosecution, civil action and administrative sanctions, were deployed against various breaches of securities laws.
Thirty-four criminal charges were filed against six individuals, five of whom were directors in public-listed companies, for offences related to false financial reporting. This underscored the severity accorded by the SC to serious breaches of securities laws.
SC also filed a civil suit in the High Court against a former licensed asset management company to claim RM13.3 million for losses caused to 63 investors. Regulatory settlements were entered with the SC when notices to commence legal action for insider trading and market manipulation breaches were issued. These settlements yielded more than RM2.7 million, with steps taken to provide restitution to impacted investors.
Furthermore, SC imposed four administrative sanctions on licensed intermediaries as well as a bond trustee for their failure to comply with their regulatory obligations. RM1.35 million in penalties were collected through such actions and 70 infringement notices were issued for other various breaches of securities laws and guidelines.
SC’s cross-border enforcement efforts led to 24 requests for information from our international regulatory counterparts. In turn, the SC received 11 requests for assistance. Such requests were made pursuant to the arrangements contained in the International Organization of Securities Commissions (IOSCO) Multilateral Memorandum of Understanding.
Protecting and empowering investors
SC’s commitment to the protection and empowerment of investors has resulted in Malaysia being consistently ranked fourth in the world for investor protection by the World Bank’s Doing Business Report.
SC reached out to over 8.4 million existing and potential investors across Malaysia through investor education and outreach activities, such as the “SC Reach” roadshow and Kempen Pelabur Bijak Kebangsaan. The release of the “SC Assists” interactive mobile application, which provides general information on investing in the capital market, provided another platform to engage with retail investors.
The implementation of the Guidelines on Sales Practices of Unlisted Capital Market Products in March 2013 afforded investors greater protection by requiring intermediaries to give due regard to the interest of investors throughout the life cycle of a product.
Investors were also provided with additional avenues of redress following the operationalisation of the Capital Market Compensation Fund (CMCF), which complements the existing Securities Industry Dispute Resolution Centre (SIDREC) and the intermediaries’ own internal dispute resolution mechanisms.
Broadening market access
To broaden access to the capital market to a wider range of investors, issuers and intermediaries, the SC implemented various measures which included the introduction of new products and asset classes, as well as alternative pathways to join the financial services industry.
The listing of the first retail sukuk has been well-received by the public, with its issuer DanaInfra introducing a second tranche within the same year. The Private Retirement Scheme (PRS) also recorded an encouraging start, with the NAV reaching RM300 million and 64,710 PRS members by end-2013. The PRS youth incentive programme announced in Budget 2014 is anticipated to further bolster the youth participation rate to 10%.
Given the projected increase in market access and growth, initiatives to further expand the scope and efficiency of intermediation activities are critical. Hence, the Graduate Representative Programme (GRP1000) was launched to train 1,000 graduates with the aim of attracting qualified professionals to join the capital market services industry in Malaysia.
In 2014, SC’s regulatory agenda will focus on enhancing efficiencies and reducing time to market, further strengthening regulation and supervision of market institutions and facilitating market access.
SC and regional regulators will collaborate to implement the ASEAN Capital Markets Forum (ACMF) framework for the cross-border offering of collective investment schemes in the first half of 2014. SC will also facilitate more cross-border and multi-currency bond and sukuk issuances as well as assess potential new fixed income products such as high-yield bonds with a view to broaden the credit spectrum of investible asset classes.
Leveraging on Malaysia’s significant Islamic fund management segment, SC will continue to work with the industry to build their capabilities and enhance cross-border linkages. The SR-i Sukuk guidelines also will be introduced this year to facilitate Shariah-compliant financing for and investments into socially responsible businesses.