MALAYSIA'S capital market, like others in the region, faces the prospects of being influenced by developments in global markets in the months ahead.
The Securities Commission (SC) said the world's financial market environment was likely to remain volatile until the credit markets stabilised and the global economic outlook became clearer.
“A situation where world growth moderated at a measured pace would probably have a minimal impact on the capital market. However, a 'worst-case' scenario, where global growth falls sharply or even contracts, would bring renewed pressure on the whole region,” the SC said in its 2007 annual report.
It noted that markets could be vulnerable to a quick reversal in global sentiment given their strong performance in the last 18 months.
But, the SC said, the Malaysian market could count on several strengths, which would lessen the longer-term impact of any downturn.
First, Malaysia has a stable economy anchored by domestic demand to provide support for further growth.
Earnings are expected to benefit from a buoyant economy and commodity prices, and a relatively higher level of domestic productive capacity.
Equity, for example, continues to trade at sound valuations; Malaysia's equity risk premium has lessened since 2002 and remains well below that of other emerging markets.
Second, Malaysia's progress in corporate and economic restructuring has led to demonstrable improvements in fundamentals and opened more growth opportunities for the market.
“A strong follow-through of plans and managing projects efficiently would reinforce confidence and lend weight to current market valuations,” the SC said.
For instance, it said, in 2008, the implementation of key infrastructure and other developmental projects under the Ninth Malaysia Plan will promote further growth of the domestic bond market.
In addition, the market appears well placed to provide funding for regional infrastructure developments, which is projected to be about US$150bil over the next five years.
“The market is also likely to have to adopt more sophisticated bond structures and instruments, such as hybrid capital, subordinated debt and securitisation, to meet demanding financing needs,” said the report.
Third, measures to strengthen the market's foundations, such as investor protection, corporate governance and market structure, are improving efficiencies, helping to lower costs and uncovering investment value.
The SC said the soundness of market intermediaries had improved in the past decade, with better risk management capabilities.
“While bolstering overall investor confidence in the market, these improvements will also continue to enhance the Malaysian market's 'investibility' among global institutional funds,” it added.
Fourth, global structure trends bode well for the capital market's long-term development.
Oil-exporting economies, Asian central banks, hedge funds and private equity have collectively amassed an estimated US$8.4 trillion in assets.
Based on conservative assumption of oil prices, foreign assets of oil exporters were estimated to reach US$6 trillion by 2012, the SC said. In seeking new investments, they are expected to inject even more liquidity into the world's capital markets over the next few years.
“Concerted efforts at enhancing product innovation and supply would place the market in stronger position to attract these funds,” said the SC.
Fifth, Malaysian market is in a good position to benefit from faster global expansion of Islamic finance, which has grown more established in the last two years. “Islamic products and services are gaining widespread acceptance,” it said.
On the supply side, there are now larger global offering of Islamic securities by a wider array of issuers.
A notable development was the British government's announcement that it planned to launch syariah-compliant gilts.
The SC said Islamic financial innovation had also grown rapidly.
At the same time, the investors' base for Islamic product starts to widen; around 50% of subscription for sukuk are said to come from non-Muslims, reflecting the competitive pricing of Islamic products.
No comments:
Post a Comment