Assalamualaikum Warahmatullahi Wabarakatuh dan selamat pagi.

Datuk Jamaludin Nasir, Ketua Pegawai Eksekutif Kumpulan, MARC

Dato-dato, tuan-tuan, puan-puan dan para hadirin yang saya hormati.

Today, outstanding Malaysian bonds and sukuk amount to RM1.8 trillion or about 111% of GDP¹. Close to half are corporate bonds and sukuk with the rest comprising government papers. These instruments play a critical role in financing the economy, contributing significantly towards fulfilling our country’s development agenda.

The domestic bond and sukuk market has demonstrated its resilience in the face of past challenges, and was a source of stability for our broader financial system. It was able to recover quickly despite massive foreign outflows during the “Taper Tantrum” in 2013, and the US election of 2016. Even during the pandemic, large defaults did not occur. In fact, gross issuance of corporate bonds and sukuk has steadily increased post-pandemic.

New supply for the first half of this year amounted to RM52.5 billion, indicating continued corporate demand. Good take-up rates also reflect investor confidence in the Malaysian economy. We expect gross issuance of corporate bonds and sukuk to remain healthy, with RM110 billion to RM120 billion to be raised in 2022.

The growth of this market segment will be underpinned by Malaysia’s strong sovereign ratings, well-developed corporate bond infrastructure, experienced market professionals, and a conducive regulatory environment. Another positive development is FTSE Russell’s removal of Malaysia from its World Government Bond Index watchlist. This is crucial for the market to be accessible to a wide spectrum of investors. It also preserves Malaysia’s track record given we have been a component of WGBI since 2007.

These fundamentals put us in a good position to weather an uncertain and volatile environment. Conditions ahead will certainly be challenging as rising interest rates may dampen market activity. With global growth anticipated to weaken, stagflation risks are increasing; compounding investor fears.

Ladies and Gentlemen

Despite the current climate, I believe there are opportunities in the Malaysian bond and sukuk market. Firstly, bonds and sukuk represent a good option for investors during periods of uncertainty. They provide diversification benefits, are relatively safer investments, and offer consistent income flows.

Currently, only 12% of outstanding bonds and sukuk are foreign currency-denominated. Issuers stand to gain by borrowing in ringgit, as it reduces their vulnerability to volatile exchange rates. Therefore, corporates should capitalise now before their funding costs increase.

Last year, 7 SRI sukuk with total programme size of RM15.5 billion were lodged with the SC. This highlights growing demand for sustainable finance, as well as transition financing. In fact, there is growing diversity in the utilisation of proceeds, with projects transcending the initial green undertakings.

Furthermore, Malaysia issued the world’s first sovereign US dollar sustainability sukuk in April last year which commanded a bid-to-cover ratio of 6.4 times. The successful reception of this sukuk, demonstrates strong appetite for Malaysia’s credit, despite the rise in yields.

The introduction of SC’s SRI-linked Sukuk Framework last month therefore aims to reinforce Malaysia’s leadership in both Islamic finance and SRI. This framework will facilitate fund raising by companies towards sustainable development. We hope to attract a more diversified range of issuers and investors with its features, which includes sustainability performance commitments.

In the medium term, local bonds and sukuk are also expected to play a major role in the country’s economic recovery and growth. This includes infrastructure projects identified under the 12^th Malaysia Plan.

On this point I would like to emphasise the vital role of independent assessments by domestic rating agencies such as Malaysian Rating Corporation Berhad. Their in-depth analysis, and diligent monitoring, help investors make sound investment decisions, in addition to preserving market confidence.

Moving forward, the SC believes credit rating agencies can play a much bigger role domestically and regionally. Their in-depth experience in Islamic ratings can be used to enhance the ratings methodology for ESG and sustainable development issuances. There is also potential to establish regional collaboration and footprints in this area. This will entail continued efforts by rating agencies to enhance resources, capabilities, as well as innovate their product and services.

Ladies and Gentlemen

In closing, I wish to emphasise that we must ensure that our market continues to thrive in the face of adversity and remain vibrant. After all,  

1. Corporate bonds and sukuk are a key driver for the Malaysian capital market and a critical source of financing for the economy;
2. The bond and sukuk market has demonstrated continued resiliency in the face of challenging global environment, and indeed has been a source of stability for the Malaysian financial system;
3. Opportunities exist in terms of widening products and access despite the rising interest rate environment; and
4. It is incumbent that Malaysia continues to lead and pioneer Islamic and sustainability products.

On that note, I would like to express my appreciation to MARC for inviting me to deliver the keynote address and wish you all a productive conference.