YABhg Tun Dr Mahathir bin Mohamad

at the Capital Market Appreciation Dinner

at the Mutiara Hotel, Kuala Lumpur

on Saturday, 15 May 2004


“The Capital Market in Malaysia:

Learning from the Past and Preparing for the Future”

Alhamdulillah, saya berasa syukur kerana dengan izin Allah Subhanahu Wa Taala kita dapat berhimpun bersama-sama di majlis ini yang amat bermakna bagi saya. Di sini saya ingin merakamkan setinggi-tinggi penghargaan kepada Suruhanjaya Sekuriti dan kesemua tokoh dan ahli industri pasaran modal serta mengucapkan terima kasih kerana sudi meluangkan masa untuk Capital Market Appreciation Dinner ini.

2. During my tenure as Prime Minister, I have seen the Malaysian capital market grow very substantially. When I started serving as Prime Minister in 1981, the capital market then was made up of just a stock market with a market capitalisation of around 55 billion Ringgit together with a large government securities market. Now market capitalisation has expanded to around 700 billion Ringgit. More impressively, there is a large and thriving private debt securities market – among the largest for emerging markets – a thriving unit trust and fund management industry, an expansion in the range of capital market products and a vibrant Islamic capital market that is considered a model by other countries. Of course, to make sure everyone behaved, we also created a securities regulator, which has been kept busy not only regulating the market but also driving the development initiatives in this area.

3. What we have achieved was not served to us on a silver platter. The journey to success has been punctuated by crises and sharp falls in the market that followed the sharp rises before it. This has been the natural path for the evolution of the capital market.

4. But whether we are on the way up or down, we cannot have a passive attitude with regard to the market. Markets are inherently imperfect and are prone to bouts of instability. For markets to perform their role as an efficient mechanism for optimal allocation of economic resources, their excesses must be counter-balanced by some form of discipline to ensure minimal hurt to players and others as the aggressive members exploit their opportunities.

5. Markets do not operate in a vacuum. A malfunctioning or abuse of the market can have a substantial negative impact on the welfare of the citizens of a nation. The rights of investors do not extend to using a market to extract the maximum profits at whatever cost. Hence governments and regulators must remain vigilant against attempts to abuse the market for quick gains without regard for the well-being of the citizens and the nation, economically and politically.

6. It is the desire of any government to have a vibrant and highly developed capital market; not as an end in itself but as a major catalyst for value creation for its people and the country. Markets must be managed for the greater good of society and for achieving growth and higher standards of living for all Malaysians. Markets are not meant to discipline Governments in the management of the economy as the great philanthropist, Soros, aver. Indeed the opposite is true Governments exist to oversee that markets are disciplined.

7. We cannot therefore leave our fate to the market players who, by definition, are concerned only with making money and not about the fate of society. Nevertheless in order to have a vibrant market, regulations and rules must not be so stifling that markets cannot generate and nurture the innovativeness that creates and begets wealth. Obviously there needs to be a balance between what is permissible and what is not.

8. In Malaysia, we have a vision. And we have made our plans to achieve this vision. In the interest of capital formation we have the Capital Market Masterplan to provide a clear and strategic roadmap for the future development of a Malaysian capital market that will continue to fulfil its role within the domestic economy effectively.

9. We envision a capital market that will continuously meet the evolving and increasingly sophisticated needs of investors. We envision a capital market that will continuously enhance its value proposition to issuers. We envision a capital market that is nimble and dynamic enough to be able to adapt and exploit to the ever-changing environment. Above all, we envision a capital market that is well positioned to make a significant contribution towards the country’s national aspirations. And it is incumbent upon all of us to continuously strive hard towards achieving these multiple goals.

10. This pragmatism, strong determination and clarity of focus, which have served us so well all this while, will be even more vital in the years ahead. The new global landscape brings with it new demands and complexities.

11. All of you who are here tonight represent an important part of the Malaysian capital market and I hope you will bear with me as I try to give some inputs which I, as a layman who is not personally involved, think can contribute to the healthy growth of the industry.

12. The world around us is changing. During the heady days of the 1990s the Kuala Lumpur Stock Exchange together with those of Hong Kong and Singapore dominated the Asian equity market scene. This luxury of dominance by the relatively small Asian economies was the result of an aberration arising out of historical circumstances. Today, the rise of the giant Asian economies is creating a completely new scenario which has resulted in a wave of prosperity throughout the region – a prosperity that we all in Asia can share and benefit from if we know how. As this structural change takes place, it will also unleash tremendous competitive forces.

13. Meeting this future challenge requires a new mindset on the part of the capital market participants. The “good old days” are over and capital market participants must prepare not necessarily for the “bad new days” but for strange new opportunities and challenges which will accompany the new days. And the future can never be predicted with any degree of accuracy. Our market players must quickly learn the art and have the agility to be more competitive and to figure out new strategies for succeeding in a harsher environment. As things stand, too many local participants are content being what Malays call “jaguh kampung” ; i.e. we are capable of doing very well in the village ring, but find ourselves quite out of our depth when facing the realities of global competition.

14. While the government has driven much of the development initiatives in the past, the private sector needs to earn its keep in the future. The Eighth Malaysia Plan clearly emphasises this point by outlining broad strategies to empower the private sector as the ultimate engine of economic growth. The domestic capital market industry must take cognisance of its natural role and prepare to compete not only in the domestic market but abroad as well and to capitalise on the opportunities created by regional prosperity. We must accept that molly-codling and protection will not be possible in the globalised international market place, and would gradually disappear even in the domestic market.

15. To maintain the competitive edge in today’s market, Malaysian capital market players must be prepared to innovate, to be unorthodox. They must have foresight when searching and recognising new avenues and sources of growth ahead of others. While it is a given in today’s marketplace is that costs must be driven down as low as possible without sacrificing efficiency, market leaders must also appreciate that competitive advantage does not come from costs alone. Industry players must learn to move more quickly up the value chain; if they wish to keep up with the rest and to move ahead of them. Rising competition and the increasing sophistication of investors and issuers mean that the barrier for capital market participants is continuously rising and that anyone who wishes to excel must continuously strive to deliver greater value to their clients.

16. But value is not a commodity. It is created through mastery of knowledge and technology. Only by increasing our stock of knowledge and expertise can we spur market innovation and remain ahead in the race. This will require again a paradigm shift. Many market participants today are too concerned with instant profits and short-term gains that they neglect the importance of investing in research and development to ensure long-term growth. This mindset, as I have mentioned earlier, has to change. In a business that depends so much on integrity, the images of reliability in the midst of change and innovation must always be maintained, even if it hurts. In the long term honesty and integrity will still pay.

17. Malaysia has established itself as a successful market in Islamic finance. It was once thought that Islamic codes cannot be applied to the capital market. But we have been able to prove that the Islamic code is not an obstacle to innovation in this market. Today as we all know many, irrespective of their religious faith are rushing into this potentially rich area.

18. Over the last 10 years, the Islamic capital market has grown substantially. Islamic bond financing for corporate entities is now fast catching up with financing through conventional bonds in terms of popularity and importance. In the equity market today, Syariah-approved counters represent more than 80% of the total number of listed companies on Bursa Malaysia.

19. The launch of the world’s first global corporate sukuk ijarah bond by a Malaysian company, followed by the Malaysian government’s issue of the world’s first global sukuk ijarah sovereign bond in 2002 are examples of our ability to innovate in the international arena for such Syariah compliant products.

20. The high regard for Malaysia’s capabilities in the Islamic capital market is also reflected by the mandate given to the Securities Commission of Malaysia to lead the International Organisation of Securities Commissions’ Islamic Capital Market Task Force. The establishment of the Islamic Financial Services Board with its office in Malaysia to serve as an international standard setting body to ensure the soundness and stability of the Islamic financial services industry further underlines Malaysia’s high standing within the global Islamic financial community.

21. If I may I would like to call on the capital market industry to step up the tempo of development for the Islamic capital market. Malaysia is very well placed now to become an international focal point for innovation for Islamic capital market products. As things stand, it already has first mover advantage and players in the Islamic capital market should seek to further build on the initial momentum that has been started.

22. Let me say a few words about the Securities Commission before I conclude my speech. Though our Securities Commission is a comparatively young organisation, celebrating its 10 th anniversary only recently, it has made great strides and has, indeed, played a major role in shaping and ensuring the orderly growth of the Malaysian capital market. The growth that has taken place has occurred within the framework created over the past decade since the establishment of the Securities Commission. Major progress has been made in critical areas. Efforts to build a strong investor protection framework and uphold higher standards of market discipline and integrity have instilled greater confidence in the marketplace. A healthy marketplace requires a strong and visionary regulator and the Commission has adequately fulfilled the role for which it was established.

23. In the final analysis, let no one forget that the Capital Market is about raising capital for business. There may be a lot of opportunities for speculation and gains from the movements in the market, but these are really secondary. They cannot exist on their own if there is no need for capital to be raised for business and other financial needs. They cannot take on a life of their own. If they do this then the catastrophe that resulted from the trading in currencies as a commodity will surely befall the industry. Whatever happens the values must be relevant to the needs and application of the capital raised. For so long as we all bear this in mind the Capital Market will be healthy and will deliver the results that we are after i.e. the availability of reasonably cheap capital for business and finance for the nation.

24. I am optimistic and encouraged about the future. I am confident that the Malaysian capital market will continue to forge ahead in fulfilling its role as a vehicle of growth and prosperity for the nation and play its part in realising our dream of a glorious, prosperous and developed Malaysia by 2020.