PETALING JAYA: The Malaysian capital market is expected to remain volatile, especially in the near term, due mainly to developments abroad.
Securities Commission Malaysia (SC) executive chairman Datuk Syed Zaid Albar
said the capital market outlook is premised on a sustained economic recovery through the normalisation of businesses and services and the reopening of borders from April 1.
“The recovery will support corporate earnings and generate positive sentiment but is subjected to considerable uncertainties. Many external risks could upend the current expectations. For example, the ongoing conflict in Ukraine is one such risk driver as we have witnessed impacts already felt in the various market segments worldwide, especially in commodities.
“The possibilities of more severe impacts still remain and given the potential for further escalation and the lack of clear resolutions we have seen so far. At this moment, the direct impact on Malaysia is still manageable given our minimal exposure to Ukraine and Russia,“ he told reporters at the virtual video conference of the SC annual report and the Audit Oversight Board (AOB) annual report for 2021.
Other key risk drivers include global supply chain disruption, given the Covid-19-related developments and the base of global monetary policy tightening.
Syed Zaid said the Malaysian capital market remained resilient in the face of renewed market uncertainties last year. In 2021, the SC directed its efforts to ensure regulatory agility, promote sustainable development and define its priorities for the next five years.
“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 digital, carbon-neutrality and managing the transition of our country into an aged-nation,“ he said.
The SC said the Malaysian capital market continued to play a key role in financing the economy and intermediating savings, recording a notable increase in fundraising activities and encouraging the growth of the overall assets under management (AUM) in 2021.
“The capital market grew by 3% to RM3.5 trillion from 2020. Total funds raised via the equity and corporate bond markets amounted to RM130.9 billion, above the five-year pre-pandemic average of RM121.4 billion.
“Alternative financing grew by 149% in 2021, setting a new record. Equity crowdfunding (ECF) and peer-to-peer (P2P) financing continued to gain traction, raising RM1.4 billion for the micro, small and medium enterprises (MSMEs) (2020: RM640 million),“ the SC said.
Meanwhile, new venture capital (VC) and private equity (PE) investments rose to RM1.1 billion (2020: RM333.9 million). Overall AUM grew to RM951.1 billion from RM905.5 billion in 2020, reflecting increases in most sources of clients’ funds under management. Net asset value (NAV) of unit trust funds, the largest contributor to AUM, rose to RM526.9 billion in 2021 (2020: RM519.5 billion).
Ensuring Regulatory Agility
The domestic capital market remained fair and orderly, with systemic risks adequately managed and contained. A significant number of public listed companies (PLC) continued to benefit from the extended regulatory reliefs and additional flexibilities to help weather the impact of Covid-19.
More than 280 PLC benefited from waivers and rebates on listing related fees under the Pemerkasa strategic programme.
“The SC also enhanced its market surveillance capabilities, including closer monitoring of corporate bonds (fixed income market) and takeover activities. Implementation of in-house digital forensics capabilities has seen improved productivity. The enhanced risk management framework, as well as the takeover surveillance framework, had also improved the breadth and depth of SC’s surveillance capabilities,“ Syed Zaid said.
He said regular supervisory assessments and thematic reviews were carried out to monitor compliance with conduct requirements, the liquidity position of market intermediaries and determine their ability to absorb redemption pressures.
“To combat unlicensed activities with greater agility, an SC cross-divisional task force was established to investigate clone-firm scams. To date, the SC has undertaken five enforcement actions, 473 regulatory interventions and put up 275 unlicensed companies and individuals on the SC’s Investor Alert List.
“In 2021, the enforcement strategy was focused on achieving swift, effective and targeted outcomes, with the SC deploying a wide range of enforcement tools. Through civil enforcement actions, the SC pursued restitution for investors with RM2.7 million restituted to 721 aggrieved investors, while a total of 136 administrative sanctions were taken on misconducts and less serious breaches of securities laws and guidelines,“ Syed Zaid said.
The SC’s guidance on Self-Reporting in 2021 paved the way in promoting stronger self-discipline amongst industry players by incentivising self-reporting and early rectification or containment of misconduct.
As reflected in the CG Monitor 2021, the SC observed improved corporate governance adoption among PLC, with adoption rates rising above 90%. Additionally, 691 PLC reported having at least one woman director on the board.
“The three-year Corporate Governance Strategic Priorities and updated Malaysian Code on Corporate Governance (MCCG) will set the tone for the development of environmental, social and governance (ESG) leadership, effective stewardship and driving CG excellence,“ Syed Zaid said.
He said foreign shareholdings in the equity market by value have consistently remained above 20% over the years, which is an indication that foreign investors are still vested in the long term prospect of the domestic PLC.
“The 2022 year-to-date foreign shareholdings have increased to 20.47% which is still higher than the historically low 18.1% in 2022,“ he added.
Promoting Sustainable Development
The SC continued to advance its development initiatives, particularly in promoting the sustainability agenda, deepening the RM2.3 trillion Islamic capital market (ICM) and strengthening the SC’s position as a hub for sustainable and responsible investment (SRI).
“The Shariah Screening Assessment Toolkit for MSMEs and the FIKRA Islamic Fintech Accelerator programme were two key initiatives introduced last year to advance Malaysia’s ICM. Unlisted MSMEs can now raise syariah-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,“ Syed Zaid said.
To provide standardisation and greater comparability in identifying sustainable economic activities, the SC released a consultation paper on principles-based SRI Taxonomy for the Malaysian capital market. The SRI taxonomy aims to guide companies with transition finance needs, facilitate investment allocation and spur 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.
“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 unit trust industry.
“A more efficient fundraising framework was put in place to meet the funding needs of high growth and small to mid-sized companies. In this regard, the approval and listing process for IPOs was consolidated, with Bursa Malaysia authorised as the one-stop centre for ACE Market listings effective Jan 1, 2022. Revisions were made to the special purpose acquisition company framework to broaden fundraising options for new ventures,“ Syed Zaid said.
Initiatives introduced for the ECF market in 2021 had aided start-ups and MSMEs in raising early stage financing in a flexible and competitive manner. This includes expanding the types of eligible issuers for ECF, as well as increasing ECF fundraising limits. Early-stage companies were also able to benefit from co-investment structures like Dana Penjana and MyCIF.
Charting the Future
To navigate emerging trends amid the new normal, the SC has set the direction forward to future-proof the capital market and build a resilient future. The SC launched the 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 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 CG Strategic Priorities 2021-2023, which represents a step forward in advancing board leadership and embedding ESG considerations into domestic corporate practices. Initiatives under these priorities include embedding CG values and culture early among youths and small and medium enterprises, both critical backbones, for the future of the nation.
To expand the SC’s financial and investment literacy penetration beyond the Greater Klang Valley area, 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.
In terms of the SC’s internal initiatives, Syed Zaid said, from an organisation perspective, the SC will strengthen its internal digital capabilities and skills set to enable the SC’s workforce to harness state-of-the-art digital technology for deeper insights and engender efficiency in our risk management, surveillance and supervision functions.
“The SC has also embarked on its own journey towards reducing its carbon and environmental footprint, in line with Malaysia’s goal of becoming a carbon-neutral country by 2050,“ he added.
AOB annual report for 2021
The SC’s Audit Oversight Board (AOB) released its annual report 2021 for yesterday. A total of 975 individual auditors and employees from smaller AOB-registered audit firms benefited from capacity-building programmes led by the AOB in collaboration with the Malaysian Institute of Certified Public Accountants last year. The programmes focused on addressing common areas of audit weaknesses noted by the AOB during its inspection of audit firms and auditors.
The AOB engaged 677 audit committee members from 397 PLC to reiterate the importance of their role in promoting the integrity and reliability of PLCs’ audited financial statements and to continue assessing the impact of the Covid-19 pandemic on the internal controls of the financial reporting function.
The AOB also implemented the Annual Transparency Report by audit firms, which saw eight firms disclosing information pertaining to their legal and governance structures, measures to uphold audit quality and manage risks, as well as the measurements of their audit quality indicators. The firms shared their Annual Transparency Report with the audit committees of their public interest entities clients.