Augmenting the Investment Landscape - Strengthening the Sustainability and Competitiveness of the Capital Market

Augmenting the Investment Landscape

The SC remains focused on enhancing investment avenues and fostering a dynamic ecosystem that supports wealth accumulation and the innovation economy. In 2024, the SC introduced pivotal measures to strengthen Malaysia’s investment landscape, targeting greater inclusivity, innovation, and competitive growth within private markets. Anchored by the goals of the Ekonomi MADANI framework and the KL20 agenda, these efforts are crafted to expand Malaysia’s investment landscape, positioning the country as a leading hub for private capital while facilitating greater access for investors.

Corporate Innovation Reports

Malaysia’s private markets have experienced steady growth over recent years and have become an increasingly important fundraising avenue for the innovation economy. As of 2024, the venture capital (VC) and private equity (PE) sectors include over 145 registered corporations, managing RM24.7 billion in assets. This marks a 297.75% growth in assets over the past 10 years from 2014 to 2024.

Nevertheless, Malaysia’s ambitions extend beyond this growth trajectory, aiming to broaden and deepen the private market ecosystem, acknowledging its crucial role in financing real economic activity. This is in tandem with Malaysia’s Ekonomi MADANI objective of ‘Raising the Ceiling’ and the national KL20 agenda to establish Malaysia as a leading startup ecosystem globally.

Corporate venture capital (CVC) is a key component in this journey, providing a dynamic and increasingly important pillar of the investment ecosystem. CVC involves the creation of dedicated venture funds by corporations, enabling direct investment in external, early-stage businesses that help these corporations meet their strategic and long-term financial goals. In recent years, the SC and Capital Markets Malaysia (CMM) have sought to catalyse CVC activity among Malaysian corporates through a series of CVC programmes. Insights gained from these programmes suggested that only a minority of corporates are embracing CVC and further effort is required for the majority of corporates who are starting the journey.

Hence in 2024, the SC conducted a Corporate Innovation Survey as a ‘temperature check’ on the state of corporate innovation among PLCs. Respondents of the survey represented approximately 36% of the FBM 100 Index’s market capitalisation, or RM482 billion.

Among the key observations, 70% of the respondents believe their company is reasonably well-prepared for innovation. Despite this, the survey highlighted that only 44% of corporates had a formal and structured process for innovation compared to 57% in the US/EMEA region.

In terms of annual spend on innovation, 40% of the respondents indicated that their annual innovation spend was approximately 0.85% of revenue which was lower than the global average of between 1% to 5% of revenue.

Additionally, 65% of respondents indicated that ‘lack of resources’ in terms of knowledge, talent, and capital is the primary barrier to innovation.

Further to this, CMM sought to better understand the status of Malaysia’s CVC ecosystem and realise opportunities for development. To this end, CMM collaborated with Boston Consulting Group (BCG) and its unit BCG X to release a report on the state of corporate venturing in Malaysia entitled ‘Advancing Malaysia’s Innovation Landscape: The Pivotal Role of Corporate Venture Capital’. The report leveraged surveys and discussions with over 30 senior leaders of the Malaysian corporate landscape, analysed current CVC activity in Malaysia and benchmarked against other ASEAN countries.

The report highlighted that Malaysia’s challenges in catalysing an effective CVC ecosystem are not unique and that similar obstacles had been observed in countries across ASEAN. This provided the opportunity to learn from successful CVC models and strengthen Malaysia’s CVC ecosystem. Three key levers were identified to this end.

The SC and CMM have embarked on the implementation of some of these levers through several CVC-related programmes. Nevertheless, as CVC is poised to unlock significant economic value for businesses and the wider economy in Malaysia, this journey can be furthered by the SC’s continuous efforts in increasing awareness, creating opportunities to start small and improving connectivity between startups and corporates.

Ultimately, these efforts will empower stakeholders in Malaysia to effectively address the current barriers to CVC participation, and foster a more vibrant, innovative and economically robust corporate sector.

Mitigating Systemic Risks And Promoting Financial Stability

Enhanced Risk Governance Framework

In 2021, the SC-wide risk governance framework was enhanced as part of an overall initiative to have an effective integrated and predictive risk surveillance to maintain regulatory agility.

The structured risk governance framework integrated the wider spectrum of risks such as technology, cyber and conduct risk at the SC’s Systemic Risk Oversight Committee (SROC) and Accounting, Market and Corporate Surveillance Committee (ACMS).

Intensified surveillance

The SC continued to intensify its surveillance of systemic risk to maintain market resilience and stability. Regular SROC engagements were held to deliberate concerns emanating from various segments across the capital market. Domestic equity and bond market, foreign fund flows and trade participation continued to be monitored closely for potential stress points.

In addition, measures and economic stimulus packages introduced by the government to weather the impact of COVID-19, market trading conduct and the financial position of listed companies were among the focus areas for discussion.

Thematic assessments

The SC also conducted thematic assessments covering investors’ fund flows, the position of firms, and policy decisions to ascertain the possible impact on the capital market. In 2021, the SC reviewed and enhanced its crisis indicators on potential emerging risks in the
capital market.

The enhanced crisis indicators provided a reference point for escalation to SROC when the identified indicators and triggers materialised and ensured prompt response to manage and prevent any issues of concern that might lead to a systemic crisis.

Joint regulatory discussions

In 2021, the SC conducted frequent joint regulatory discussions with other authorities such as Bank Negara Malaysia (BNM) and Labuan Financial Services Authority (Labuan FSA) to identify systemic risk concern areas within the financial and capital markets in Malaysia.

Monitoring of various components of the capital market

The SC continued its efforts to undertake a methodological and integrated approach to ensure any potential systemic risk was being monitored, mitigated, or managed. Figure 1 highlights the findings from the following risk assessments on the various components of the capital market.