Assalamualaikum and a very good morning to all. |
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| 1. | Firstly, I would like to wish “Selamat Hari Raya” to all our Muslim participants. This is the first Raya we have had under MCO, where celebration is confined to family members in the same household. I am sure you agree, that it is a small sacrifice we have had to make for the greater good and well-being of all Malaysians, especially our embattled front liners. I am sure, like me, many of you found ways to adapt and connect to family and friends online. |
| 2. | It is this spirit of resilience and agility that will help Malaysia recover from one of the worst economic disruptions in modern history. The theme of today’s conference is therefore most apt, inviting us to look forward and to ‘ride the wave’ towards recovery. |
| 3. | In my speech today, I will highlight three areas that the capital market can focus on in shaping the road ahead for Malaysia’s recovery. These are: a. First, Sustainable and Responsible Investment (SRI) b. Second, technology and innovation; and c. Third, broader opportunities for SMEs and other under-served segments. |
Ladies and gentlemen, |
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| 4. | Before I go into these three areas, allow me to focus on the significant role played by the bond and sukuk markets in Malaysia’s economic growth, especially in building confidence in our market. As at April 20211 , I note that Malaysian bonds continue to attract interest, with foreign holdings amounting to 25% of outstanding government bonds. |
| 5. | The SC has long recognised the role of private debt securities as a source of funding, particularly for large-scale, long-term projects. It also increases private sector participation in economic development. Accordingly, various initiatives developed over two decades, have created a supportive ecosystem. |
| 6. | These range from strengthening bond trading and post-trade infrastructure, to facilitating approval processes and broadening investor participation, as well as tax incentives2. The setting up of the Bond Information Exchange (BIX), has also played an important role in enhancing investor access to information. |
| 7. | The support of key stakeholders, including market intermediaries such as yourselves, has enabled Malaysia to be the third largest bond market in Asia relative to GDP3. The World Bank’s latest report4 on our domestic bond and sukuk market, also acknowledged it as a success story for emerging markets. |
| 8. | Given the outlays required for infrastructure development, opportunities abound for the Malaysian bond and sukuk markets to continue to be a major funding source for nation building initiatives. This however, is not unique to Malaysia. In fact, 79% of the respondents to the 2020 Global Infrastructure Index believe that infrastructure investments will be one of the main drivers that will create new jobs and boost their economies. |
| Ladies and gentlemen, | |
| 9. | When it comes to SRIs, globally, green investments have constituted the bulk of environmental, social and governance (ESG) issuances thus far. However, the pandemic has provided fresh impetus to social investing, making it a fast growing area in the ESG space. |
| 10. | In fact, up to a few years ago ESG was still regarded as a niche area, but today it has mainstreamed. Governments and regulators have also signalled their intent to act on climate and sustainable development issues. Notably, Malaysia’s first sovereign sustainability sukuk saw overwhelming demand with an oversubscription rate of 6.4 times. This benchmark can encourage similar issuances in the domestic market. |
| 11. | Given Malaysia’s leadership in Islamic finance, we have long recognised that sustainability and accountability go hand in hand with a responsible financial system. The development of a holistic ecosystem for SRI culminated in the timely release of the SRI Roadmap in November 2019, to accelerate growth in this sector of our capital market. |
| 12. | No doubt, strong collaboration and coordination among all market stakeholders is key to the progress of SRI. Therefore, I would encourage participants to reference the Roadmap and to identify opportunities for the bond and sukuk markets. |
| Ladies and gentlemen, | |
| 13. | In terms of growth opportunities, we have also seen how digital adoption has helped drive retail participation in the capital markets. |
| 14. | From a bond market perspective, technology can improve fund raising efficiencies, enhance liquidity, as well as facilitate access to diverse and quality assets. |
| 15. | In the past year, a slew of digitisation efforts has advanced the SC’s development agenda. For the Islamic capital market, we are keen to encourage potential solutions to augment Shariah-compliant digital market offerings and services. As such, I look forward to hearing fresh ideas and perspectives from today’s Islamic Fintech session. |
| Ladies and gentlemen, | |
| 16. | In 2020, the domestic bond market grew to RM1.6 trillion5 despite the challenging environment, up from RM1.49 trillion as at end 2019. This augers well for its prospects, as well as Malaysia’s recovery and future growth. |
| 17. | However, more needs to done for growth to be sustainable. Given the significant contribution of MSMEs to GDP and employment, there is a need to broaden the credit spectrum to include smaller bond issuers. |
| 18. | The challenge is adapting the bond and sukuk markets to provide cost-effective means for small and lower-rated issuers to raise funds to meet their growth and expansion plans. |
| 19. | This is particularly important because the greater or more inventive use of traditional assets alone will not be enough to foster better growth. For example, securitisation transactions embedded with the necessary safeguards have the potential to be a valuable financing tool, transforming illiquid assets into liquid and tradable assets. However, more transparency and ‘traceability’ of these assets will allow investors to better assess the risks involved. |
| 20. | This is where I would like to highlight the importance of credit rating agencies as gatekeepers in enhancing transparency and safeguarding market confidence. While credit ratings are now market driven rather than regulatory driven, demand for accurate, reliable and widely disseminated ratings has remained a constant feature of our debt markets. |
| 21. | Effective internal control structures, good governance, transparency, and robust disclosures will therefore promote greater integrity in the rating process. This, in turn, would mitigate potential conflicts of interest, enhance ratings quality, and promote greater ratings accountability. |
| Ladies and gentlemen, | |
| 22. | In closing, allow me to reiterate that the SC is committed to facilitating the growth of the bond and sukuk markets through innovation whilst ensuring a fair, efficient and transparent market. |
| 23. | Looking ahead, the overall landscape will likely continue to be uncertain with the after effects felt long after the pandemic has ended. God willing, these challenges will pass, especially since we do have the fortitude and agility to capitalise on the waves to recovery and growth. |
| 24. | With that, I would like to thank MARC for inviting me this morning and I wish you all a fruitful conference ahead. |
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