Keynote Address


YBhg Dato’ Sri Zarinah Anwar, Chairman,
Securities Commission Malaysia

at the

India-Malaysia Capital Market Forum
ITC Grand Maratha Hotel, Mumbai, 20 November 2008

Mr C. B. Bhave, Chairman, Securities & Exchange Board of India,

His Excellency, Dato’ Tan Seng Sung, the Malaysian High Commissioner to India,

Distinguished guests,

Ladies & gentlemen,

Namaste” and a very good morning to all.

1. It is a great pleasure for me and the Malaysian delegation to be here in India. I would like to start by thanking the Securities & Exchange Board of India (SEBI) for co-organising with us this first ever India-Malaysia Capital Market Forum. This inaugural forum reflects the intent and commitment of SEBI and the SC Malaysia to promote stronger linkages between our financial sectors and capital markets, and to increase cross-border investments and participation.
2. The SC Malaysia has had a longstanding relationship with SEBI with whom we share much in common. As early as 2001, we had entered into a bilateral Memorandum of Understanding committing to a framework of mutual assistance and cooperation in the enforcement of securities laws. We are both members of the International Organisation of Securities Commissions (IOSCO), and participate actively in its Emerging Markets and Asia-Pacific Regional committees where we have been jointly involved in key international regulatory initiatives.
3. I wish to take this opportunity to express my heartfelt thanks and appreciation to Chairman Bhave and his team who have worked closely with the Malaysian team to put today’s event in place. I must also say a big thank you to the Malaysian delegation and organizing team, and in particular our High Commissioner, His Excellency Dato’ Tan Seng Sung for his support and cooperation. Thank you also to all participants both from India and Malaysia. Your presence indicates that you clearly see the potential opportunities in our respective markets and I am sure you will work earnestly towards deepening the relationship between us.
Meeting global challenges through Asian cooperation
Ladies and Gentlemen:
4. This forum is being held at a time when the global markets are facing unprecedented turbulence. Although Asia is not the epicenter of the current dislocation of global financial markets as was the case a decade ago, we are nonetheless already feeling the aftershocks from the fissure in the fault lines in the developed markets.
5. Fortunately, Asian countries such as India and Malaysia have undertaken major reforms to address the vulnerabilities in our markets over the past decade. Malaysia has reformed our corporate governance framework, implemented a strong prudential framework for financial institutions and capital market intermediaries, and diversified our sources of financing – through developing a large corporate bond market. We have also imposed rules to regulate short-selling and to promote higher levels of disclosure and transparency.
6. Our regulatory commitment to ensuring high levels of investor protection, ensuring fair and orderly markets and systemic stability affords our markets some form of protection from global financial contagion. But it does not completely insulate us from the broader risk elements such as currency volatility, counterparty risks, macro-economic risks and operational risks.
7. Nonetheless, the fruits of our reforms are evident. Despite the intensity of the global financial market fall-out, there has been little evidence so far of distressed balance sheets and counter-party weaknesses in Malaysia even though our stock market has been subject to the same forces of gravity battering equity valuations worldwide. Regulators in Malaysia have acted preemptively in ring-fencing financial assets to prevent external contagion from affecting its safety and this fortunately has underpinned the high levels of domestic confidence in our financial system.
8. Asian countries are currently focusing their efforts on containing the effects of the crisis on an individual basis. However, this may not be a sufficient response as it does not factor in Asia’s advantage of high savings and large foreign exchange reserves. India currently has forex reserves of about USD275 billion while Malaysia’s reserves stands at USD100 billion which suggests that India and Malaysia have the balance sheet capability to finance domestic growth to offset the slack in global economic activities. If we are able to effectively collaborate through long-term investments and through supplying liquidity for each other’s marketable assets, we should be able to create conducive growth conditions in each other’s markets.
Exploring cross-border opportunities between India and Malaysia
Ladies and gentlemen;
9. As India now awakens to realise its potential as a global economic powerhouse, it will be seeking to expand its economic participation in the region. This is vital at a time when there is a need to fill the vacuum in global consumption and investment due to the financial crisis.
10. So it is an auspicious time to have the India-Malaysia Capital Market Forum which can build on the already strong existing commercial links between our two countries. Indian joint ventures are active in Malaysia in the fields of palm oil refining, power, railways and civil construction. Indian companies have also been extremely supportive of our Multimedia Super Corridor (MSC) and are active in areas such as ICT security, content development, wireless technologies, biotechnology and the like.
11. Similarly, India has offered Malaysian companies many opportunities. Malaysian companies, together with local Indian partners, have participated in infrastructure projects such as the building of airports and the construction and operation of highways. Malaysian companies also have a presence in the telecommunications sector. India in fact is a key market for the Malaysian construction industry. Between 1998 and August 2008, 20 Malaysian companies have completed 58 construction projects in India worth USD2.6 billion.
12. However, when we look at the financial sectors and capital markets, the level of cross-border participation and investment is still relatively low and certainly not reflective of our existing trading and direct investment relationships. There must surely be untapped opportunities for both our capital market players. Given our mandate to develop capital markets, both SEBI and SC Malaysia are happy to be the catalysts in promoting greater linkages between our markets.
13. Against this backdrop, it is worth noting that Malaysia has a developed, diversified and deep capital market that complements our domestic banking sector in meeting the funding needs of the economy as well as the investment needs of investors. Let me touch on several broad areas where I think there are potential opportunities to expand Indian participation in Malaysia and vice versa.
14. One of the most important market segments in Malaysia is our bond market which has established itself not only as a major source of financing for corporates in Malaysia but has also emerged to become among the largest local currency bond markets in the region with a size of USD147 billion (RM515 billion)1. More significantly the growth of this market has been driven by corporate issuances which account for 52% of outstanding bonds.
15. Recent liberalization measures introduced, have facilitated the ability of foreign issuers to tap into our bond market. Year to-date, ten foreign entities have issued ringgit-denominated bonds amounting to USD2.0 billion (RM7.1 billion). Similarly, foreign investments in ringgit bonds have risen to USD16.1 billion (RM56.4 billion).
16. One key area I wish to highlight is the sukuk or Islamic bond market which now features prominently in Malaysia’s value proposition as a leading international Islamic financial centre. More than 60% of global sukuk outstanding originated from Malaysia and sukuk issuances comprise 55%2 of total corporate bonds issued in Malaysia. It is also worth mentioning that many issuers and investors in Malaysia’s Islamic capital market are non-Muslims and their increasing participation in the Islamic market marks a recognition of the strong demand for Islamic products worldwide, particularly from financial institutions and investment funds looking for shariah-compliant assets.
17. There are opportunities for Indian issuers to have access to cost- effective financing through sukuk issuances in Malaysia as well as for Indian intermediaries wishing to build an origination and distribution presence in the fast-growing world sukuk market. Malaysia offers the necessary critical mass to support innovation and its commercialization.
18. Infrastructure is a potential area for co-operation. In this regard, I would like to mention that Malaysia is currently leading a task force to promote infrastructure development financing within ASEAN. Infrastructure projects have a high multiplier growth effect and can assist to offset the slack in global economic growth as a result of the current crisis. The Task Force is hoping to link the financing of infrastructure development with the development of capital markets as infrastructure projects can easily generate a large supply of equities and debt securities.
19. One of the fastest growing segments of the Malaysian capital market is our investment management industry – with annual growth rates exceeding 20% in the recent past. Despite the sharp fall in the stock market, the net asset value (NAV) of our unit trust industry has declined by significantly less than the decline in the market capitalization, and we are still seeing net inflows this year, reflecting investor confidence in the industry.
20. We have implemented a programme of gradual de-regulation and liberalization and these have resulted in a significant broadening in product offerings with the most recent launches including governance funds and Asia’s first Shariah-compliant exchange traded fund. Since liberalizing foreign participation in this industry from 2004 onwards, we have seen major global players establish operations in Malaysia.
21. Last year, we fully liberalized the Islamic fund management segment and offered tax incentives and mandates to foreign players. This has since attracted considerable interest from global fund managers to establish Islamic fund management operations in Malaysia. Two days ago, we announced that approval has been granted to Reliance Capital Asset Management Ltd of India to establish operations in Malaysia.

Ladies and gentlemen;
22. Our aspiration to extend our close cultural and commercial ties into the capital market cannot be realised through policy and regulatory interventions alone. Market participants play an equally important role to realise this shared aspiration. I am therefore very pleased that many key members of the Malaysian capital market have joined the Malaysian delegation, as they see the potential for possible collaboration with India’s capital market players.
23. I know that many Malaysian companies already have very rewarding collaborations in India. Let me also point out that even though it is a Malaysian delegation, we also have CEOs who represent foreign financial institutions based in Kuala Lumpur.
24. In conclusion, both India and Malaysia are at the stage of development where we need to expand our business franchises and markets internationally. And prospects are likely to be better in countries where familiarity extends to centuries of shared ties such as between India and Malaysia. This visit is an important and significant step towards renewing the vitality of that relationship, in seeking to create opportunities for each other. Let me end with a quote from your illustrious former Prime Minister Jawaharlal Nehru who once said “There is no end to the adventures that we can have, if only we seek them with our eyes open”.

On that note, I wish everyone a very successful Forum.

Dhanyavaad”. Thank you.

1. As at end-October 2008

2. USD37.3 billion (RM132 billion)