1 December 2010 | By : Tan Sri Zarinah Anwar, Chairman, Securities Commission Malaysia
Address by
YBhg Tan Sri Zarinah Anwar Chairman, Securities Commission Malaysia at the
International Shariah Investment Convention 2010 1st December 2010 Nikko Hotel, Kuala Lumpur, Malaysia
Dr Mohd Daud Bakar, President/CEO Amanie Business Solutions Distinguished guests Ladies and gentlemen Assalamu alaikum and a very good morning
I am pleased to welcome all of you to the International Shariah Investment Convention 2010, organised by the Securities Commission Malaysia (SC), Bursa Malaysia and Amanie Business Solutions. The SC is delighted to be able to co-host this event which seeks to explore investment opportunities in the Malaysian capital markets for fund managers and investors from the GCC and Middle East and North Africa (MENA) region as well as the other parts of the globe. I understand that yesterday the programme was centered on fund management and investments, and I hope that the discussions and exchange of views have enabled all participants to not only discuss the opportunities available in Malaysia but also provided a better understanding of the regulatory system in place, and identified possible solutions to outstanding issues that could impede cross-border investments.
Malaysia’s Unique Value Proposition
In Malaysia, Islamic finance has evolved to provide a diverse range of viable investment and financing alternatives that are accepted by Muslim and non-Muslim investors, both domestic as well as international. This wide acceptability underscores the fact that Islamic finance is relevant and dynamic, and its values universal.
A recent survey by Kuwait Finance House Research shows that Malaysia has a clear lead over all other Islamic financial centres. We obtained top ranking for Regulatory and Legislations, Products and Services, Infrastructure, Risk Management and Audit as well as for Statistics, Marketing and Education; underscoring the fact that Malaysia does have a well-developed, well-regulated and comprehensive Islamic financial system. Indeed Malaysia offers global investors and issuers a unique value proposition.
While the Malaysian sukuk market is significant and vibrant and I will elaborate on this shortly, it is not Malaysia’s only offering to international investors and issuers. For those seeking shariah-compliant investments and opportunities, we offer a complete and mature shariah-compliant financial system which comprises Islamic banking, takaful, and the Islamic capital market, the latter extending far beyond the sukuk market. Malaysia is also fast becoming a centre for Islamic fund and wealth management services, and for international Islamic banking service; as well as a centre for Islamic finance education, training, consultancy and research. All these sectors are supported by facilitative policies and underpinned by clear and robust regulatory as well as Shariah governance frameworks.
A vibrant sukuk market
To our visitors, you could not have chosen a more opportune time to visit Malaysia and to explore investment opportunities in our capital markets. These are exciting times for the Malaysian capital market, in particular for the Islamic capital market.Earlier this morning I was at Bursa Malaysia to witness the listing of IDB’s US$ 3.5 billion trust certificate issuance programme. It is the first benchmark foreign currency sukuk issued by a multilateral development bank. The first issuance of USD500 million of the triple A-rated sukuk was 1.56 times oversubscribed, a clear indication of the strong demand for quality and liquid assets, not just by Islamic financial institutions but by fixed income investors from across the globe. With investor distribution comprising 54% from the Middle East, 34% from Asia which includes 20% from Malaysia and 12% from Europe, this is clear proof of the global demand for quality sukuk
The USD sukuk issuance by the IDB follows a string of other ringgit-denominated sukuk issued by corporates and multilateral agencies like the World Bank and National Bank of Abu Dhabi (NBAD). In fact a couple of months ago, IDB listed its Ringgit denominated sukuk on Bursa Malaysia. This has also been well received.
Today’s listing of the IDB US dollar Sukuk brings the number of sukuk listed on Bursa Malaysia to 19 with a total value of about US$27bil. Our Sukuk market has in fact experienced unprecedented growth in recent years. Between January to September 20101, over 55% of all bonds approved by the SC were Sukuk. Malaysia still originates more than 60% of global sukuk outstanding.
Our efforts in making Malaysia an international centre for Sukuk issuance and listing are clearly showing results. The sukuk market has become the most significant and vibrant segment of the international Islamic financial system. Issuers are seeing the sukuk as an attractive means for raising capital, whil investors are increasingly seeing it as a new asset class in their investment universe. This has generated significant cross-border flows as funds are raised from beyond domestic financial markets and as investors diversify their portfolios into assets from other jurisdictions.Significant progress has been achieved in particular in positioning Malaysia as a centre for the origination, distribution and trading of sukuk as well as other capital market products. It is fair to say that the Malaysian sukuk market has now evolved into the world’s largest.
The Equity market
With 961 listed companies, our stock exchange, Bursa Malaysia, offers the widest and largest selection of companies in ASEAN. Currently, 88% of the stocks listed on Bursa Malaysia making up 62% of total market capitalization, are shariah-compliant2. Investors therefore have access to an extensive selection of stocks across diversified industries for broader and deeper investment portfolios. Dividend yields for Malaysian stocks is currently estimated at 3.4% which places it among the highest in the region. This is supported by sustainable earnings growth with return on equity is estimated at almost 20%3.
Our equity market offers investment opportunities in Malaysia’s best and largest companies, some of which have strong regional presence. The listing of Petronas Chemicals Group Bhd last Friday 26 November 2010 further broadens the investment choice in Malaysian stocks. It is by far the largest IPO in the history of Malaysia and South East Asia, and had attracted heavy demand from investors. It is also now among the top syariah-compliant stocks on Bursa Malaysia based on market capitalisation.
Bursa is also home to several of the world’s largest plantation companies and is also the world centre for price discovery of crude palm oil. Of late, we have seen significant interest from foreign companies for listing on Bursa Malaysia. We now have five China-based companies listed.. Of these, three voluntarily sought and obtained Shariah-compliant status at their IPO4. Individual and institutional investors seeking Shariah-compliant investments can therefore access these companies through investing in Bursa Malaysia.
Bursa Malaysia also operates a transparent and well-regulated commodity-trading platform known as Bursa Suq Al-Sila’ to facilitate financing using Murabahah and Bai Bithaman Ajil, based on the mechanism of Tawarruq.
The Fund management industry
The Islamic fund management industry constitutes the fastest growing segment of our Islamic capital market with an annual compounded growth of more than 25% over the last 5 years. The Islamic fund management segment has been fully liberalised with attractive tax incentives offered by the government. We now have 15 full-fledged Islamic fund managers operating in Malaysia including some of the biggest names in the international fund management industry.
We have 152 Islamic unit trust funds with a total NAV of RM23.02billion (USD7.1billion)5.
In order to further develop our Islamic fund management industry and to enable Malaysian investment products to be offered abroad and foreign products to be offered to Malaysian investors, Securities Commission has actively pursued mutual recognition arrangements with other strategically important markets. Currently, we have Mutual Recognition Agreements with the Dubai Financial Services Authority and the Securities and Futures Commission of Hong Kong, and discussions are ongoing with a few other jurisdictions to enter into similar arrangements. These agreements help to widen the industry’s distribution network and promote exchange of ideas to enhance product offerings, especially for funds meant for regional distribution.
Strong regulatory and Shariah governance frameworks.
A key aspect of Malaysia’s regulatory approach is to ensure that investors in Malaysia’s Islamic capital market receive the same degree of clarity, certainty and protection as investors in the conventional market.We emphasise a common regulatory approach to regulating our Islamic capital market based on IOSCO’s objectives and principles of regulation.
The requirements for disclosure, transparency and governance therefore apply equally to Islamic and conventional products, thus ensuring that an investor in an Islamic product receives the same legal and regulatory protection and recourse that would be available to an investor of conventional products. In effect conformity to Shariah is achieved within a single regulatory paradigm with additional governance and disclosure requirements. We have to ensure that these products and services are also true to label and that trust in Islamic products is safeguarded. Where existing frameworks do not or cannot offer parity of treatment, then these are either amended or enhanced by the introduction of specific new guidelines.
Uncertainty, lack of clarity and conflicting interpretations with respect to the Shariah will not inspire confidence and may slow down the pace of development. It is for this reason that the SC had recently introduced numerous amendments to our Capital Market and Services Act. These changes strengthen the SC’s Shariah Advisory Council (SAC) and places it on sound legal footing to ensure that the Council will continue to play an important role in the development of the Islamic Capital Market. The law now recognises the SAC of the Securities Commission is the central authority for the ascertainment of Shariah principles for Islamic capital market. We believe this to be a crucial step in ensuring a clear and consistent development path for the Islamic capital market.
A gateway to ASEAN
Whilst Malaysia is itself an attractive investment destination, it is also a gateway to the rest of ASEAN. Malaysia is centrally located in the region which comprises a potential market of about 600 million people and a combined GDP of more than USD1.8 trillion. ASEAN collectively ranks as the 9th largest economy in the world and the 3rd largest in Asia in terms of nominal GDP. In the first quarter of 2010, annual GDP growth rates in ASEAN countries ranged from 5.7% to 15.5%. ASEAN has established a reputation of according investors with stable and profitable returns on investment, not only for portfolio managers, but also for longer-term direct investors in both the real and financial sectors.
The capital market regulators in ASEAN are working very closely on numerous projects intended to make ASEAN an attractive asset class. In fact yesterday our Prime Minister launched the 7th ASEAN Finance Ministers’ Investment Seminar. ASEAN countries offer tremendous opportunities for those seeking shariah-compliant investments, particularly through investments in sukuk from the region or in regional funds. Malaysia thus is well positioned to provide the linkages to support investment flows into the region. It is the natural gateway for those seeking investment opportunities in the ASEAN region which is one of the fastest growing regions in the world.
Ladies and gentlemen,
Closing Remarks
I am confident that this convention will enhance the ties between our markets and will facilitate further engagements which will increase the flow of funds between the regions. As a regulator we are ready to be facilitative and to remove any regulatory impediments. The market will however have to do the rest.22.I sincerely hope that this convention would bring much benefit to all present.
Thank you.
1 SC approved 14 sukuk proposals, including 1 proposal from Bank Pembangunan Malaysia Berhad which applies both Shariah and conventional concept with nominal value of RM2,000 million.
2
As per announcement, dated 26th November 2010. 3
Source Bloomberg
The Securities Commission Malaysia (SC) was established on 1 March 1993 under the Securities Commission Act 1993 (SCA). We are a self-funded statutory body entrusted with the responsibility to regulate and develop the Malaysian capital market.
