1. Good morning. Let me first congratulate The Asset for organising this Capital Market Forum for the first time in Kuala Lumpur. This is indeed timely and may I add my commendation for the initiative.
2. The Malaysian capital market is going through exciting times. As we leave behind us the 97/98 financial crisis and dismantle the last vestiges of crisis-driven control measures, we are now seeing a fresh horizon of new possibilities.
3. Indeed the world's capital markets now enjoy tremendous breadth and vibrancy. Globalisation, liberalisation and advances in information and communications technology are enabling financial institutions to routinely move trillions of dollars of financial assets around the globe. The transformation of China, the assumption of India as a major world economy and the clear determination of the Southeast Asian nations to succeed, all combine to present an unprecedented scope of opportunity and challenge to both providers and users of capital. It has been estimated that in Southeast Asia alone, an amount in excess of US$ 460 billion is expected to be spent over the next 15 years to upgrade infrastructure.
Considerable Growth in the Domestic Capital Market
4. The Malaysian capital market continues to play a critical role in financing our economic growth. The equity market is now about 1.5 times the size of the national economy while the corporate bond market is about two fifths of GDP. Meanwhile the size of our largest institutional fund the EPF, now stands in excess of RM200 billion and is projected to reach close to RM280 billion by the end of 2008. The NAV of the unit trust industry now stands at RM87 billion with 36 management companies managing a total of 10.5 million accounts. Collectively, fund managers licensed by the SC have in excess of RM100 billion under their management.
5. The growing size of investible funds proudly reflects growing individual wealth in the country. To facilitate fair returns the government has allowed several measures to further liberalise our market. Domestic funds are now allowed to invest up to 30% in foreign equities. Needless to say that venturing abroad demands added and further skills, resources, networks, processes and procedures. I am happy to note that some intermediaries are already taking up the challenge by investing in all these.
6. That said however, the domestic market is also seeing new products and new asset classes being introduced. Triple A rated supranationals like World Bank, IFC and ADB have over the past 9 months issued ringgit bonds totalling RM1.66 billion in our market. More such issues are in the pipeline.
7. To further enhance the depth and breadth of the domestic market new instruments like Exchange Traded Funds, Real Estate Investment Trust (REITS) and basket call warrants have been introduced.
8. Meanwhile efforts to develop the corporate bond market have shown significant results. In 2004 new funds raised from the corporate bond market totalled RM36.3 billion. Also in our effort to enhance the breadth of the corporate bond market, the Securities Commission (SC) has identified asset securitisation as a strategic initiative that will satisfy market demands for innovative products as well as provide a cost-efficient source of funding for Malaysian companies. Towards this end, various measures, including the SC's Guidelines on Offering of Asset-Backed Securities and favourable tax treatment, have been put in place to promote the issuance of asset-backed securities.
9. These efforts are showing results. As at end-June 2005, the SC has approved a total of 31 ABS issues amounting to RM22.4 billion. The most notable issuance being the residential mortgage-backed securities (RMBS) recently issued by Cagamas, based on receivables from Government staff housing loans. These issues have been well received by both local and foreign investors.
10. Islamic bonds continue to be favoured by institutional investors in this country. At present, 49 percent of the outstanding corporate bonds are Islamic bonds. The release of SC's Guidelines on Islamic Securities helped significantly in clarifying the framework for such issues. Indeed this has further enhanced Malaysia's position as leader in the international Islamic Capital Market. It is said that the next phase of the growth of International Islamic finance is a shift to securitisation. Malaysian intermediaries must exploit our first mover advantage in this field internationally.
11. Similarly the issuance of structured products has been facilitated by the SC's Guidelines on the Offering of Structured Products. With the growing sophistication among investors with respect to fixed income instruments, it will not be long before tradable structured products such as credit-linked notes are introduced in Malaysian capital market. These products will enable investors to seek higher returns in taking on credit risks that are transferred by the note issuers.
Strengthening Intermediation Services
12. Meanwhile to strengthen the intermediation services within the capital market, universal brokers have been allowed to participate in the bond market and to access the money market. To make their services available to investors in every part of the country, they have also been allowed unlimited branching. Recently the Guidelines for the creation of Investment Banks was jointly released by SC and Bank Negara, allowing the creation of financial supermarkets offering the full range of intermediation services though one entity. Five foreign brokers and at least one foreign fund manager are in the process of setting up shop in Malaysia. These foreign intermediaries bring with them their experience, skills and service standards, which are benchmarked internationally. They will soon be offering Malaysian investors products and services that have long been available to investors globally.
13. The government has introduced numerous policies to strengthen capital market intermediaries and to open up new business opportunities for them. In fact, various regulatory reforms have been undertaken to allow intermediaries to capitalise on the many competitive advantages that they have. It is imperative that intermediaries respond to these policy initiatives and capitalise on their distribution network, broad client base and knowledge of the local market to remain competitive. The increasing acceptance of our Islamic capital market products by international investors for instance, offers unprecedented opportunities for Malaysian issuers and intermediaries.
14. As all these changes are taking place, national borders are being lifted. A few Malaysian intermediaries have already taken steps towards strengthening their position by forging strategic alliances with foreign counterparts and venturing into regional markets while at the same time acquiring the necessary skills and expertise in terms of new products and overseas investments.
15. With the expansion of boundaries, and the increasing integration of markets, intermediaries are not only being scrutinised by their clients but also by the regulators. The more markets they operate in, the more intense would be the monitoring and surveillance by the regulators. With much closer cooperation among regulators, intermediaries must be aware that their conduct and practices in one market would have a bearing on their ability to offer products and services in other markets.
The Changing Profile of Investors
16. With greater access to information and investment opportunities, growing affluence and increasing awareness about the need to save for retirement and children's education, investors today are getting more demanding in their hunt for alpha. And rightly so. They demand better services from their intermediaries and better returns on their investments. Their investment appetite has also grown beyond plain debt or equity.
17. Investors are also more discerning in their choice of intermediaries and investment products. The ease of convertibility of funds would remove any hesitation investors may have in moving their funds from one intermediary to another or from one market to another. Intermediaries would do well to constantly remind themselves of this new reality.
SC's Commitment to Market Development
18. The challenging capital market environment today also requires regulators to play a proactive role in the market beyond reactively adapting or amending existing laws and removing regulatory impediments. In Malaysia, our vision and agenda for market development have been clearly set out in the Capital Market Masterplan (CMP). So far, we have successfully established all the necessary components of a well-regulated market place - comprehensive corporate governance framework, an internationally compatible accounting framework and securities and settlements systems and regulations that conform to International Organisations of Securities Commission (IOSCO) principles.
19. The SC has and will always be supportive of product and market development initiatives. We have facilitated development through various means and have done our level best to ensure that the regulatory framework is facilitative and conducive for innovation.
20. The rolling out of new products must be complemented by efforts to instil greater awareness and understanding in the marketplace. Efforts must be pursued to educate not merely the investors but also those in the delivery chain; the remisiers, financial planners, investment advisers and fund managers. In this regard, the Securities Industry Development Centre (SIDC) of the SC continues to be very active in both investor and professional education by organising seminars, workshops, road shows etc. It is our hope that industry associations and market professionals will continue to support the SIDC in these efforts.
Conclusion
21. In conclusion let me say that capital market is a vital component of a modern and advancing economy. The quality and innovativeness of market intermediaries will make a difference on the effectiveness of the capital market as wealth-creating engine for the economy.
Thank you, and I wish you all a very productive session ahead.
