Thursday, March 21

25 years of Securities Commission – Depth, access and efficiency

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KUALA LUMPUR: Malaysian capital market has grown 4.4 times to RM3.1 trillion as at end of 2018, in spite of the adverse impact of two financial crises, said the Securities Commission (SC) in its Annual Report 2018.

The SC which was established 25 years ago in 1993, remained steadfast in evolving and growing with the market needs.

It has invested and put in place efforts to create a facilitative ecosystem for the capital market to develop and provides productive and efficient financing of the economy.

Among others, a holistic Digital Markets Strategy was rolled out in 2016 to facilitate innovative market-based solutions and develop a conducive digital finance ecosystem, it said.

“In particular, to ensure that the capital market continues to provide financing for the needs of not only larger businesses but also smaller firms, alternative market-based financing avenues such as equity crowdfunding and peer-to-peer financing were introduced,” it said in an article entitled:”Growth of The Malaysian Capital Market in the last 25 years: Mobilising financial resources for economic development,” which is part of the report released here yesterday.

It said this is an area in which the benefits of utilising newer technology could clearly be seen by lowering the costs of obtaining capital and enhancing transparency for smaller firms, making them more accessible and attractive to potential investors.

In the economic development of a country, the financial system plays an essential role in mobilising financial resources for business activities and long-term investment for future growth, including the capital market, which typically grows in importance as an economy becomes more developed.

Hence, going forward, as Malaysia continues to undergo structural reforms in its transition to a high-income economy, it will continue to challenge the SC in driving new initiatives that will help to facilitate the evolution of the capital market and enhance access to financing of new growth areas necessary for a more modern economy while ensuring that it remains sustainable and inclusive, said the SC.

To recap, the bond market grew at a compound annual growth rate (CAGR) of 12.1 per cent per annum since 1993 to account for 45.3 per cent of the Malaysian capital market in 2018.

It said 25 years ago it only accounted for 11.6 per cent.

The ringgit bond market is the third largest as a percentage of Gross Domestic Product (GDP) in Asia after Japan and South Korea and the second largest in terms of absolute size in ASEAN after Thailand.”

The growth in market-based financing was in line with the structural change in the Malaysian economy, particularly following the 1997-98 Asian financial crisis.

SC said Malaysia has also been able to diversify its market-based funding avenues by developing the Islamic capital market (ICM), particularly the sukuk segment.

Malaysia’s ICM expanded at a CAGR of 10.9 per cent per annum to RM1.9 trillion at the end of 2018 from RM294 billion in 2000. Sukuk continued to comprise the majority of domestic bonds outstanding in 2018, making Malaysia the world’s largest sukuk market.

The continued growth and more diversified structure of the economy have increased the funding requirement for domestic businesses, with the debt capital market developing to become an important alternative for business financing, complementing credit by banks.

Corporate bonds accounted for 45 per cent of total business financing in Malaysia as at end 2017, compared with only 8.8 per cent in 1993.

Pension funds, insurance companies and other institutional investors have also played an important role in mobilising savings by investing in the domestic capital market.

This has allowed the capital market to continue to provide long-term financing – with the thrust more pronounced in corporate bond issuances – for businesses to fund their activities and for the country’s long-term economic development, including managing infrastructure development needs.

The bond market has contributed to more than half of the private-sector infrastructure investments since the early 1990s, with the increase in investment is characterised by the secular increase in gross fixed capital formation (GFCF) over the years.

The growth of the Malaysian capital market has not been just in terms of size, as witnessed by the robust and comprehensive development in terms of infrastructure, institutions, regulations and products over the years.

This progress is clearly reflected in the International Monetary Fund’s (IMF) index of financial development for Malaysia, which allows for consistent comparisons across time and between countries.

Based on the IMF’s index, the development of the capital market could be assessed through three key dimensions – depth, access and efficiency.

The IMF’s measurement showed that Malaysia’s overall financial sector development has improved significantly between 1993 and 2016 on the back of advancement in all three dimensions.

“Notably, in terms of international comparison, Malaysia has achieved commendable performance overall and is ahead of emerging market peers and in some aspects, advanced markets,” it added. —Bernama