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Securities Commission Plans Sustainable Consolidation of Malaysian ICM in 2020 Amid Greater Competition from Rivals as Market Size Surpasses RM2 Trillion in 2019 with 64 percent of Overall Market

The Malaysian capital market grew by 3% in 2019 driven largely by its Islamic capital market (ICM), one the most developed in terms of infrastructure, market size and depth, which grew by 8%. The indications are that this upward growth trajectory was continuing in the first two months of 2020.

It is too early to assess the impact of the Covid -19 pandemic in March and April, but Datuk Syed Zaid Albar, Chairman of the Securities Commission Malaysia (SC), at the launch of the regulator’s latest 2019 Annual Report in April 2020, sought to reassure the market that “with this Covid -19 pandemic, we are confronting a situation that none of us has experienced in our lifetimes. It requires measured responses that consider the longer-term impact on our market and its participants, beyond this immediate crisis. While the world comes together to combat this public health emergency, we have taken proactive measures to ensure that markets continue to operate in an orderly manner, as access to funding is vital to maintain confidence and ensure the long-term recovery of the market.”

These include further Regulatory Reliefs for PLCs; greater fundraising access for MSMEs (Micro, Small & Medium-Sized Enterprises) including lifting fundraising limits on Equity Crowdfunding (ECF) platforms and allowing them and peer-to-peer financing (P2P) platforms to undertake secondary trading, both with immediate effect; accelerating digitisation transformations through providers offering more online products and services to investors by expediting guidelines for holding virtual general meetings – all this by “remaining steadfast in ensuring investor interest is protected and market integrity is maintained during this challenging time.”

The implications for the ICM are implicit. In 2019 the size of overall capital market totalled RM3,202.11 billion, of which the ICM accounted for RM2,035.59 billion or 63.57%. At end January 2020, the size of the ICM held firm at RM2,001.77 billion or 63.46% of the overall capital market. The resilience of the ICM is underlined by its steady growth trajectory over the last few years from RM1,133.83 billion (or 59.19% market share) in 2017 to RM1,036.52 billion (or 60.55% of market share) in 2018 to its 2019 growth.

The SC data reveal that at end 2019, the market capitalisation for Sharia’a-compliant PLCs totalled RM1,096.62 billion and there were 714 Sharia’a-compliant PLCs out of a total 929 listed on Bursa Malaysia (76.86% of the total PLCs on Bursa Malaysia); total government and corporate Sukuk outstanding amounted to RM938.96 billion (63.01% of the total bond and Sukuk market), of which corporate Sukuk outstanding amounted to RM555.50 billion (79.58% of the total corporate bond and Sukuk outstanding); total government and corporate Sukuk issued amounted to RM235.20 billion (61.12% of the total bond and Sukuk issued), of which corporate Sukuk issuance totalled RM102.39 billion (77.09% of total corporate bond and Sukuk issuance).

The data also revealed that at the end of January 2020, the market capitalisation for Sharia’a-compliant PLCs totalled RM1,057.80 billion (64.25% of the total market capitalisation of securities listed on Bursa Malaysia of RM1,646.36 billion); 714 Sharia’a-compliant PLCs out of a total 931 listed on Bursa Malaysia (76.69% of the total PLCs on Bursa Malaysia); total government and corporate Sukuk outstanding amounted to RM943.97 billion (62.59% of the total bond and Sukuk market), of which corporate Sukuk outstanding amounted to RM554.85 billion (79.23% of the total corporate bond and Sukuk outstanding); and total government and corporate Sukuk issued dramatically falling to RM10.60 billion (41.86% of the total bond and Sukuk issued), of which corporate Sukuk issuance totalled RM0.30 billion (7.43% of total corporate bond and Sukuk issuance).

The Malaysian fund management industry remained an important source of liquidity in 2019, registering a strong 11% growth in overall assets under management (AUM), a rebound from negative growth in 2018. The Islamic AUM recorded an impressive 14% growth rate but put in context it started from a much lower base than conventional asset management.

Overall total AUM of the fund management industry increased to RM823.2 billion in 2019 (2018: RM743.6 billion), of which Islamic AUM accounted for RM180.52 billion or 21.93% of the total AUM of the industry. Of this Islamic Unit Trusts contributed RM107.32 billion (22.26% of the total Unit Trusts); Islamic wholesale funds RM12.33 billion (21.22% of the total Wholesale AUM); Islamic Private Retirement Scheme EM1.05 billion (30.34% of the total Private Retirement Scheme AUM; Islamic REITS with a market capitalisation of RM18.20 billion (41.62% of the total REITS size) and Islamic ETFs at RM545.86 million (25.47% of the total ETF market capitalisation).

“The 11% increase,” explained the SC, “was driven by valuation gains in small and mid-cap equities as well as higher net injections from dividend re-investment and marked a welcome rebound from the -4% contraction in 2018. The depth of domestic buy-side liquidity also enabled orderly intermediation of cross-border portfolio flows. In 2019, the bond and sukuk market recorded total non-resident portfolio inflows of RM19.9 billion while the equity market saw outflows of -RM11.1 billion. This accumulated to a net inflow of RM8.7 billion into the capital market, compared to net outflows of -RM33.6 billion in the previous year.”

Looking ahead, SC Chairman Datuk Syed Zaid Albar contends that with the current supervisory, surveillance and enforcement safeguards in place, the Malaysian capital market remained resilient and orderly amidst a challenging external environment. But he agrees that the Commission “also notes rising international competition in the ICM, which necessitates a renewed focus by the SC to further develop this segment.” Saudi Arabia, Dubai and Turkey are emerging as ICM rival markets especially in Islamic investment funds and Sukuk issuance.

The priorities for 2020 include designing a structure for Waqf funds, “which enable returns to be channelled towards social impact activities and which is guided by our Islamic Fund and Wealth Management Blueprint and is expected to be launched in 2020”; accelerating the Sustainable & Responsible Investment (SRI) Sukuk Framework (first introduced in 2014 and revised in 2019) in the context of meeting the UN’s Sustainable Development Goals, in pursuit of SC’s ambition to develop Malaysia as a regional SRI centre and navigating the Sustainable & Responsible Investment Roadmap for the Malaysian Capital Market (SRI Roadmap), a five-year plan which contains 20 strategic recommendations mapped against our existing 5i-strategy.

As sustainability is an overarching concern, co-operation, stresses Datuk Albar, is vital to align all stakeholders towards this objective. Domestically, the SC and Bank Negara Malaysia (BNM) have set up the Joint Committee on Climate Change (JC3) to pursue collaborative efforts to build climate resilience within the financial sector.

However, these ambitions may have to be tempered depending on the ability and capacity of Malaysia and the world at large in containing and eventually eradicating the threat and socio-economic impact of the Covid-19 pandemic.

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