ICM Continues its Resilience and Dominance in RM3.4 Trillion Malaysian Capital Market Despite Impact of COVID-19 in 2020 Surpassing RM2.3 Trillion with 66% Market Share

Despite the impact of COVID-19, the Malaysian capital market showed its resilience by registering an overall 7% growth in 2020 compared with 3% in 2019.

According to the 2020 Annual Report of the Securities Commission of Malaysia (SC), released in March 2021, this growth trajectory was driven largely by its Islamic capital market (ICM), one the most developed in terms of ecosystem, market size and depth, which grew by 11% compared with 8% in the previous year.

The indications are for a further growth bounce in 2021 as the economy starts to recover from the impact of the pandemic, albeit still subject to the course of the virus infection trajectory especially through new variants and the success of the government’s vaccination roll out. Datuk Syed Zaid Albar, SC Chairman remains hopeful of even better times ahead.

“The world, our country, our people, and our industry have weathered a tumultuous 2020. With the vaccination effort being expedited at the global and domestic fronts, we are cautiously optimistic that 2021 will see a post-pandemic reset that will put the nation back on track, although recovery could be gradual and uneven across sectors and countries,” maintained Datuk Albar at the launch of the annual report.

The SC, he reminded, had recalibrated its priorities to enable the regulator and capital market participants to address and respond to the impact of the pandemic while ensuring market stability and continuity. The year 2020 brought forth trends that will likely alter the future landscape of the market, he added.

“In a year marked by business disruptions,” he said, “the SC was able to respond swiftly to market and commercial needs and ensure the capital market remained accessible, agile and accountable (the ‘3As’). The SC channelled its resources in 2020 to focus on deploying sustained and facilitative regulatory actions to ease evolving market pressures, manage market and operational risks, protect vulnerable investors, accelerate digitisation of the capital market and widen opportunities in key and emerging market segments.”

The implications for the ICM are implicit. In 2020 the size of overall capital market totalled RM3.4 trillion (S$8.2 billion), up from the RM3.2 trillion in 2019, of which the ICM accounted for RM2.3 trillion compared with RM2.03 trillion in 2019 or 65.85% of the total capital market. On other words the ICM grew 10.85% in 2020 compared to 2019.

Its market size recorded RM2,256.36 billion as at December 2020 in comparison with RM2,035.58 billion as at end 2019. This comprises total market capitalisation of Sharia’a compliant equities of RM1,238.57 billion and total Sukuk outstanding amounting to RM1,017.79 billion, which is 45.11% of the total bond/Sukuk outstanding.

Malaysia’s vibrant Sukuk market continued to hold its own in 2020. According to SC data, in 2020, the Malaysian Government issued RM146.96 billion of Sukuk (2019: RM132.81 billion). This represented 56.07% (2019: 52.70%) of total Government bonds and Sukuk issuances of RM262.09 billion (2019: RM252.03 billion).

Total Government Sukuk outstanding stood at RM424.36 billion in 2020 (2019: RM383.47 billion), out of total Government bonds and Sukuk outstanding at RM876.62 billion (2019: RM792.24 billion). This represented 48.41% (2019: 48.40%) of total Government bonds and Sukuk outstanding.

Long-term corporate Sukuk issuances however felt the impact of the pandemic most in 2020 with issuances down to RM76.98 billion (2019: RM102.39 billion) out of total corporate bond and Sukuk issuances of RM104.58 billion (2019: RM132.82 billion). This reflected a decrease to 73.61% (2019: 77.09%) of total corporate bonds and Sukuk issuances.

Similarly, total corporate Sukuk outstanding at end 2020 amounted to RM593.43 billion (2019: RM555.50 billion) out of a total of corporate bonds and Sukuk outstanding of RM732.39 billion (2019: RM698.04 billion). This represented 81.03% of total corporate bonds and Sukuk outstanding (2019: 79.58%).

Sukuk issuances by Government and corporates at December 2020 represented 61.07% (2019: 61.11%) of total bonds and Sukuk issuances. These amounted to RM223.94 billion of such Sukuk issued in 2020 (2019: RM235.20 billion) out of total bonds and Sukuk issuances of RM366.67 billion (2019: RM384.85 billion).

Total Government and corporate Sukuk outstanding at end 2020 amounted to RM1,017.79 billion (2019: RM938.96 billion) out of a total Government and corporate bonds and Sukuk outstanding of RM1,609.01 billion (2019: RM1,490.28 billion). This represented 63.26% of total Government and corporate bonds and Sukuk outstanding (2019: 63.01%).

SC data also shows that two new corporate SRI Sukuk were issued in 2020, bringing the total of SRI sukuk issuers to 13 since 2015. Corporate SRI Sukuk issuances amounted to RM0.62 billion, 0.81% of total corporate Sukuk issuances, while corporate SRI Sukuk outstanding grew from RM4.71 billion in 2019 to RM5.25 billion as at December 2020, constituting 0.88% of total corporate Sukuk outstanding.

Compared to the Sukuk market, the Islamic fund management industry is the poor relation of the Malaysian ICM. Total assets under management (AUM) at end December 2020 stood at RM216.80 billion registering a 20.10% increase from RM180.52 billion as at end 2019. This compared to the conventional funds industry AUM of RM905.46 billion (2019: RM823.19 billion).

The number of Islamic CIS (UTF, WF, PRS, REIT and ETF) stood at 367 as at
December 2020 including 5 Islamic SRI unit trust funds. There were 54 fund management companies (FMCs) managing Islamic funds, with 23 full-fledged Islamic FMCs and 31 FMCs offering Islamic windows at December 2020.

At end 2020, the Malaysian ICM had 6 Islamic ETFs with a market capitalisation of RM550 million; 4 listed Islamic REITS with a market capitalisation of RM16.99 billion; 26 Islamic PRS Funds with a NAV of RM1.53 billion; 60 Islamic Wholesale Funds with a NAV of RM11.55 billion; and 240 Islamic Unit Trust Funds with a NAV of RM128.53 billion.

The SC has a very proactive Digital Agenda for the capital market. In 2020, guidelines to regulate Initial Exchange Offerings (IEO) and Digital Asset Custodians (DAC) were issued. An encouraging development for digital assets was the Shariah Advisory Council’s (SAC) ruling on the permissibility of investment and trading
of digital currency and digital tokens.

A secondary trading framework for equity crowdfunding (ECF) and peer-to-peer financing (P2P) was also launched to provide investors with an exit mechanism, while
Budget 2021 tax exemptions will spur individual investor participation in ECF.

ECF and P2P financing indeed recorded
continued growth momentum, increasing by 43% from a year ago, raising RM631 million for the Micro, Small and Medium Enterprises (MSMEs).

Looking ahead, Datuk Albar emphasised several priorities for the regulator in 2021. These include:
i) Pushing ahead with its 3A vision for the capital market in support of national economic recovery.
ii) Ensuring that more businesses, including MSMEs and Mid-Tier Companies, can fundraise through the capital market, in tandem with the government’s focus on developing high growth companies in the green and digital economy.
iii) Continuing digital development to be a core industry agenda, and at such, a key priority at the SC. This will entail facilitation of more innovative intermediation within the capital market, and greater focus on the industry’s capabilities to manage technology risks, including cyber risks.
iv) Strengthening regulatory capabilities on risk surveillance.
v) Encouraging the greater use of technology and machine learning across the SC’s regulatory functions from supervision to enforcement.
vi) Along with the increased focus on ESG, the SC will also prioritise the growth of SRI and continue to leverage on Islamic capital market to drive SRI. The SC will be developing the Guiding Principles on SRI Taxonomy for the Malaysian capital market – a key pillar to the Government’s national sustainability agenda to transition Malaysia into a low carbon economy. And
vii) Rolling out the Capital Market Masterplan 3 (CMP3) in the Second Half of 2021, which will articulate the SC’s developmental and regulatory approach and initiatives for the next five years.

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