Closing Remarks
YBhg Tan Sri Zarinah Anwar
Chairman of the Securities Commission Malaysia

at the
World Capital Markets Symposium

28th September 2010
Kuala Lumpur, Malaysia


Your Excellency Haruhiko Kuroda, President of the Asian Development Bank,
YBhg Tan Sri Amirsham, Chairman of the National Economic Advisory Council (NEAC),
Distinguished speakers, ladies and gentlemen,

Thank you very much for staying with us. I am grateful to note your sustained interest and your being here faithfully for the past one and a half days.

President Kuroda, thank you very much. It is a great honour to have you with us this afternoon.

Distinguished guests, ladies and gentlemen,

The agenda for the past one-and-a-half days has been a very full one, in which we have discussed the issue of leadership, change and governance not just in relation to capital markets but also to the wider environment in which these markets operate.

If you remember, in delivering the keynote address, the honourable deputy prime minister appealed for a broader scope of reform that would promote sustainable and socially-inclusive growth. He encouraged the private sector to relieve governments of the burden of driving growth, by pursuing long-term socially-responsible investments and also argued that globalisation must be accompanied by strong governance if we are to avoid destructive competition and social injustice. This also requires more co-operation and collaboration among nations, stronger global institutional arrangements as well as strong domestic leadership.

These themes were reflected in the discussions in the symposium. We recognise that many factors contributed to the global financial crisis. These included long-standing macroeconomic imbalances and weak governance, which distorted incentive structures. Global financial activity became self-serving and deviated from its economic role. As one speaker put it, the international financial system became a borrowing machine and not a lending machine.

The global economic recession that ensued has resulted in structurally lower growth of the world economy. Amid heightened concerns of a “double-dip” recession, it is encouraging to hear from many speakers confidence in Asia’s ability to withstand a global downturn. Asian growth is robust, although in future it must be the result of higher productivity and less driven by net exports. At the same time, a key message coming out of the symposium is that economic recovery in Asia and new regulations in advanced countries should not give rise to complacency.

Risks to the world economy still remain high. Previous imbalances remain, but growth is now more uneven, with greater reliance on a few engines of growth. Countries are more inter-dependent through trade and capital flows. As a result, shocks in one part of the world are more easily transmitted to other parts. Policy disparities between slower-growing advanced countries and faster-growing emerging countries could give rise to destabilising hot-money flows, which in turn are generating currency volatility and exchange rate tensions and protectionism will threaten global recovery, not only because it stifles trade but also because it raises the cost of financial services.

At the same time, regulation, deregulation and regulatory preclusion have had some unintended but significant consequences. For instance, while originally meant to promote competition, we heard yesterday that exchange deregulation has fragmented markets and given rise to high volatility arbitrage activity in the form of high-frequency trading. The preclusion of over-the-counter markets and the shadow banking system from regulatory oversight has facilitated the growth of leveraged trades. Such developments, coupled with more integrated markets and economic activities, have of course had an impact on the systemic risk.

The global community showed appropriate unity in the face of adversity during and in the immediate aftermath of the global financial crisis. The G20 was quickly formed and its membership replicated by the Financial Stability Board. However, as the immediate threat of crisis recedes there is a risk that enthusiasm for reform and earlier commitments might wane. There is also a danger that the global community becomes focused on regulating the last crisis instead of anticipating the next one, given the sheer complexity of issues involved.

It has also been argued that Asia needs to speak more loudly and with one voice in the discussion over global economic and financial governance. Indeed, effective global governance is going to be constrained if emerging markets in Asia (and elsewhere) are not recognised and represented. The challenge, however, is to overcome the diversity of national interests that comes from the different sizes and stages of development among Asian countries.

A stronger voice from Asia will emerge if Asia remains on track on regional integration as you’ve mentioned, President Kuroda towards removing barriers to trade and more open markets. Asia needs integration to facilitate greater trade and capital flows, and open up investments, including sovereign wealth funds and pension funds.

Integration is also a stronger and more sustainable basis for building market liquidity in the region’s capital markets. Deep and liquid markets, as we have heard, are important enablers for venture capital and other productive investments into future drivers of economic growth. There are still many opportunities for exponential growth in emerging markets, and this region in particular. However, we need to create conditions for entrepreneurs to unlock technology as we have heard this morning, for new platforms, improve communications infrastructure like broadband and facilitate the use of new media such as social networks.

Countries and industries that capitalise the opportunities best will be those that generate the least frictions. A key message is that we must reduce or remove friction costs. Make sure that good things are easy to do, and regulate bad things away. Easier said than done, perhaps, but certainly a crucial thing to bear in mind amidst moves to strengthen regulation of financial activities.

Ladies and gentlemen,

I am extremely grateful to everyone who contributed to this year’s symposium. I would like to thank our amazing speakers, our event partner, the Global Brand Forum, and our strategic sponsors, the Capital Market Development Fund and Maybank, for their generous support and commitment. Thank you as well as to our media partners who has given extensive coverage Astro Awani, the BBC, CNBC Asia and CNBC Arabia, the Economic Times of India, ET Now, The Edge and The Wall Street Journal. The staff of the SC has worked extremely hard behind the scenes as well as in the front of house throughout the event. Last, but by no means least, allow me to thank you, the audience, for attending and contributing to the discussions.