Malaysian ICM Continues its Resilience and Dominance with 65% Market Share in 2021 on the Back of Strong Market Capitalisation and Sukuk Outstanding

The Malaysian Islamic Capital Market (ICM) continued its resilience and dominance of the overall domestic capital market in 2021 despite the ongoing economic and fiscal impact of the COVID-19 pandemic and its associated global shocks especially in supply chain disruption and inflationary pressures.

According to the latest 2021 Annual Report of the Securities Commission Malaysia (SC), the size of the ICM increased by 2.3% to RM2,308.54 billion (US$520 billion) at end 2021 from RM2,256.36 billion (US$510 billion) at end 2020.

The ICM continued to dominate accounting for 65.4% of the total size of the overall Malaysian capital market, which also showed its resilience by registering an overall year-on-year (YoY) growth of 3% to RM3.53 trillion (US$790 billion) in 2021 on the back of “a robust capital market regulatory infrastructure, diversified market ecosystem and market participants’ strong capitalisation levels.” This compared with a 7% YoY growth in 2020 and 3% in 2019.

Datuk Syed Zaid Albar, SC Chairman, reiterated at the launch of the Annual Report 2021 that “the Malaysian capital market remained resilient in the face of renewed market uncertainties. In 2021, the SC directed its efforts to ensure regulatory agility and to promote sustainable development. With our focus firmly on a post-pandemic future, the SC’s priorities in 2022 aim to shift the capital market to a relevant, efficient, diversified and inclusive ecosystem, allowing Malaysia’s national growth pillars to achieve our ambitions in areas such as digitalisation, carbon-neutrality and managing the transition of our country into an ageing nation.”

There were significant developments in the SC’s Sustainable Development Agenda during the last year. Malaysia is currently one of the top hubs for sustainable and responsible investment (SRI) in the world especially in the Sharia’s complaint space, in which social and financial inclusion values and goals are firmly embedded, in addition to market and financial returns.

The introduction of the Sharia’s Screening Assessment Toolkit for MSMEs and the FIKRA Islamic Fintech Accelerator programme in 2021 is expected to further advance the country’s ICM. Unlisted MSMEs can now raise Sharia’s compliant funds and investors now have access to alternative Islamic assets as well as investments that meet market-based and societal needs.

Measures to grow the domestic SRI ecosystem focused on enhancing awareness and appreciation of sustainability and facilitating Green and SRI product offerings. Towards this end, the SC launched the NaviGate: Capital Market Green Financing Series, a programme to create greater awareness and connectivity between companies committed to sustainability and the capital market.

The Commission also released a consultation paper on the Principles-based SRI Taxonomy for the Malaysian capital market. The SRI taxonomy aims to guide companies with transition finance needs, facilitate investment allocation and promote the growth of SRI assets. In terms of Islamic social finance, there was continued traction in Waqf-featured funds, thus providing investors with an instrument to achieve both financial and socially impactful outcomes.

The SC claims that significant progress was made to broaden capital market access, expand investment options and increase the efficiency of the traditional markets. This includes expanding the categories of sophisticated investors to provide greater access to capital market products, promoting faster IPO time-to-market and revising the Guidelines on Unit Trust Funds to promote competitiveness and innovation in the industry.

The SC data reveal that the ICM fared better than its conventional counterpart in several market share segments. Malaysia’s vibrant Sukuk market continued to hold its own in 2021. In a year affected by adverse market conditions, total Sukuk issued in 2021 was RM237.41 billion (62.91% of the total bond and Sukuk issuance of RM377.41 billion), compared with RM223.94 billion (61.07%) in 2020.

Similarly, total Sukuk outstanding in the same period amounted to RM1,104.26 billion (63.43% of the total bond and Sukuk outstanding of RM1,740.83 billion in 20321) compared with RM1,017.79 billion (63.26%) in 2020.

Corporate Sukuk issuance totalled RM91.40 billion compared with RM76.98 billion in 2020. This represents 79.98% of the total RM114.28 billion bonds and Sukuk issued in 2021 – up on the 73.61% in the previous year.

Total Corporate Sukuk outstanding in 2021 was RM629.27 billion (81.42% of total bond and Sukuk outstanding) compared with RM593.43 billion (81.03%) in 2020.

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 2021 stood at RM 224.80 billion (23% of the total fund management industry of RM951.05 billion) compared with RM216.80 billion (23.94%) in 2020.

The number of Islamic CIS (UTF, WF, PRS, REIT and ETF) stood at 386 as at

December 2021 up on the 336 in 2020.  At end 2021, the Malaysian ICM had 6 Islamic ETFs with a market capitalisation of RM420 million; 4 listed Islamic REITS with a market capitalisation of RM16.13 billion; 28 Islamic PRS Funds with a NAV of RM1.90 billion; 75 Islamic Wholesale Funds with a NAV of RM11.74 billion; and 273 Islamic Unit Trust Funds with a NAV of RM128.34 billion.

The ICM had 81 SC-registered Shariah Advisories in 2021, comprising 62 individual advisers and 19 incorporated advisories.

Looking ahead, the trajectory of the Malaysian Capital Market will be guided by the recently launched Capital Market Masterplan 3 (CMP3), as a strategic framework for the growth of the capital market over the next five years. “The SC’s priorities in 2022,” reminded Datuk Albar, “aim towards achieving the CMP3’s desired outcomes of a relevant, efficient, diversified and inclusive capital market that will enable the Malaysian economy to emerge stronger.”

The SC also issued the Corporate Governance (CG) Strategic Priorities 2021-2023, which represents a step forward in advancing board leadership and embedding ESG considerations into domestic corporate practices.

These include i) Strengthening Board leadership for agile and responsible business, with an emphasis on board refreshment, accelerating the participation of women on boards, and enhancing the professional development framework for boards; ii) Deepening Engagement with Youth on CG by Developing further collaboration with universities, including joint research and enriching academic studies as well as youth exposure to current corporate governance issues; iii) Strengthening ESG fitness of Boards through provision of capacity-building support for boards on sustainability and widening the availability of sustainability information through an enhanced reporting framework and annual progress report in the SC’s CG Monitor report; iv) Leveraging digital tools to enhance CG transparency by widening public access to corporate governance data; and v) Supporting investor stewardship and engagement through enhancing retail shareholder-board engagement on corporate governance and sustainability through investor education and supporting institutional investor stewardship and engagement.

“Initiatives under these priorities,” added Datuk Albar, “include embedding CG values and culture early amongst youths and SMEs, both critical backbones of the economy. To expand the SC’s financial and investment literacy penetration, financial education and investor outreach programme initiatives will focus on the underserved segment and silver population through the ‘Agen Bijak Labur Desa’ and ‘Digital Clinics for Urban B40’, to narrow the digital divide and equip vulnerable investors with knowledge on investment risks and opportunities, and tools to identify scams.”

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