,Markets EVERY crisis seems to bring out the need to plan for the future. It is often reflective of what the current economic predicament is and what the solution can be, and it is no different for the Securities Commission (SC). What the SC has done since 2001 is develop a blueprint on how to address issues surrounding the capital market over a 10-year horizon, starting with the first iteration of the Capital Market Masterplan (CMP) in 2001. In 2011, after the first CMP had run its course, there was the follow-up vision by the SC. The first was in response to the economic devastation brought about by the Asian Financial Crisis and the need to strengthen the intermediaries. It was an overarching plan to fix the balance sheet and stability of the capital markets and the broking industry. The second CMP came on the heels of the Global Financial Crisis and it looked at elevating standards, transparency and products of the function of the capital markets. “Although the Covid-19 pandemic and its disruption to business activities have affected sentiment, the capital market continues to be a key source of financing for companies.” Datuk Syed Zaid Albar This year, there will be the third CMP but the flavour of that looks decisively different from the first two blueprints for the capital markets. This time around, as what the pandemic has shown, is the need to embrace more technology and inclusiveness. In a world that has markedly changed from a decade ago, the issues that need to be tackled have morphed. Talking points such as environmental, social, and governance or ESG, societal balance in terms of access to financial products and markets and other digital-centric are increasingly nudging their way to the forefront as equitable development starts to move in the consciousness of the investing public. “Things are evolving very fast and we have to be able to adapt to these changes. Our intermediaries must be equipped and able to change. The move to digitisation is important and we have to widen and broaden the scope of the market and allow for more diversity, ” says SC chairman Datuk Syed Zaid Albar. The fund raising aspects of the Malaysian capital market have been strained slightly by the pandemic and understandably so. The deep recession in the second quarter of last year hurt just about every facet of the economy and the capital markets, in terms of fund raising which was not spared. There was a slight dip in 2020 from how much was raised in 2019 but there are expectations of a rebound this year. More IPOs: The SC is working with Bursa Malaysia to ensure the vibrancy of the market and to attract more companies to list. In terms of trends, it was the digital-element of trading and fund raising that bucked the trends of last year. While money still remains largely in the hands of the middle-aged to the elderly, it was shown that the millennials too have started to take a more active role in investing as shown in the boom of retail interest in the stock market last year. “ECF/P2P (Equity crowdfunding/Peer to Peer) platforms have shown that the underserved of the market they were still able to access to funding under such conditions, ” says Syed Zaid with a large number of micro SMEs being able to gain access to funding in ways not seen before. He says demand for funds is no different throughout the country but the awareness levels differ from urban areas. The SC is looking to bridge that divide this year by ensuring that rural Malaysia does not get left out in capital raising activities. Digital investment management and the growing Islamic market are pillars the SC wants to address. “Malaysia has no problem with liquidity but it is a question of where the money should be for investment. Today, a lot of money is channeled to the stock market as retail investors start to make a comeback, ” he says. The attention-grabbing GameStop saga too showed how digitisation has affected the investing public. It shows that Internet-forums can be a mobilising force to rival hedge-funds in terms of how investment flows are directed.It also sent a chilling warning that advice is no longer the proprietary domain of the brokers. The events of GameStop too was a timely reminder that investors too should listen, from the Malaysian perspective, to licensed advisers and not just any social media investment “guru” with a following. The pandemic brought about many changes and one of them was AGMs that were held virtually. As in the case with social media and advice given through that medium, the process too was drought with issues, among them questions from shareholders that were ignored. “Irrespective of whether the AGM is held through a physical or virtual meeting, the SC expects engagement with shareholders and stakeholders to be meaningful and good corporate governance practice dictates that all questions posed by all stakeholders be responded to by the board and/or senior management, ” says Syed Zaid. CLICK TO ENLARGE Based on a survey on conduct of fully-virtual general meetings during the first movement control order (MCO) and conditional MCO found that despite a preference for physical participation, a significant number of shareholders would like to continue having the option of participating in a general meeting remotely or online. One of the concerns ahead for Malaysia has been the declining foreign investor interest in the stock market in recent years. Syed Zaid says international fund managers take into account both tactical short-term factors as well as longer term strategic and structural issues in determining their portfolio asset allocations. During 2020, there was a light to safety with the price of gold rising steadily over the course of the year, as well as firm demand for safe haven currencies and bonds. He says that for emerging Asia, ex China and India, there was a net outflow of about US$56bil (RM230bil) from equity markets in 2020, out of which US$19.8bil was from Asean including US$5.8bil from Malaysia. As a result, he points out that as at end-February 2021, foreign shareholding in Malaysian equities stood at 20.4% vs an average of 22.35% between 2001 and 2020. It was still higher than 18.1% recorded in 2002, which was the lowest level over the last 20 years. Foreign capital will flow in when there is an opportunity for foreign investors to make a return and the inflows will be based on the types of companies and industries in Malaysia investors are chasing. “ At the same time, we may also not enjoy an inflow of international funds that are seeking exposure to sectors or industries that are not well represented on Bursa. This last point may also explain the periodic disparity between our economic and stock market performances over the years, where some sectors that drive our economic growth are not proportionately represented on the exchange. So this is actually an area of opportunity for Malaysia – in terms of attracting more listing of companies in those sectors or industries, ” he says. One way to generate more interest in companies on Bursa Malaysia is to have the stock exchange conduct more promotional activities and be relieved of its regulatory role over the listed companies. “All the operational framework for the establishment of Bursa’s regulatory subsidiary has been put in place. Once the regulation is finalised and gazetted, we should be ready for implementation by the second half of 2021, ” he says.Click here for the interview: SC remains vigilant on emerging cyber risks
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