Malaysia: Capital progress

In a major boost for Malaysia, global index provider FTSE has upgraded the country’s capital market status from secondary to advanced emerging. The vote of confidence fits well with the government’s ambitious plans to restructure the economy through major investment.

The decision demonstrated that Malaysia had fulfilled the requirements of FTSE’s quality of markets assessment criteria in that category, the group said in a September 23 statement.

Malaysia will be moved from the FTSE Secondary Emerging Market Indices into the FTSE Advanced Emerging Market Indices, and all parent and sub-indices of these benchmarks, from June 2011.

Bursa Malaysia BHD chief executive officer Datuk Yusli Mohamed Yusoff said the upgrade was a significant achievement for Malaysia,

“This is testament to the efforts taken to build an efficient and quality market and we are now ready to take on a new level of challenge in this upgraded classification of our capital market,” Yusoff told local media.

Tan Sri Zarinah Anwar, the chairperson of Malaysia’s Securities Commission, said that the FTSE’s decision underlines global recognition of the Malaysian capital market’s regulatory framework, and that it could lead to greater international participation in the local marketplace.

“We made great strides in strengthening our regulatory framework for the capital market over the past decade,” she said in a statement issued on September 23. “All market participants in the Malaysian capital market have been subject to higher standards of governance, accountability and ethical conduct. This progress has been recognised internationally and serves to enhance investor confidence in our capital market” she added.

According to a report released by Barclays Capital Plc on September 24, the FTSE move will draw up to $3bn of new capital inflow into the Malaysia stock exchange, with the privatisation of state assets also serving to attract additional funds and strengthen the country’s weightings in global stock indexes.

Wai Ho Leong, a Singapore-based economist and one of the authors of the report, said the FTSE upgrade was one of the key catalysts for further appreciation of the ringgit, while the expected sell off of state assets would boost market liquidity and foreign fund inflows.

“While Asia’s superior growth is a given, Malaysia stands out for investors because of its asset-divestment program,” Leong told the Bloomberg news agency.

Malaysia’s capital markets are going to be even more of a stand out as a result of a new government-sponsored programme that will rely heavily on private funding, much of which will probably be raised through the stock exchange or various bond issues.

On September 21, the government unveiled its Economic Transformation Programme (ETP), an ambitious 10-year plan to completely reshape the Malaysia economy, and lift the country to developed-nation status though massive investments in selected sectors such as oil, gas and energy; transport and infrastructure; and financial services.

However, to turn the ETP into reality, the government expects the private sector to foot most of the bill, with investors in turn expected to look to capital markets for at least some of the $410bn the non-state contribution to the total $444bn budget.

Datuk Seri Idris Jala, a minister within the prime minister’s department, says that a final decision on how the funding for the various projects will be secured has yet to be taken.

“The final structure of whether the government will issue bonds or provide guarantees will be decided after lengthy discussions,” Jala told StarBizWeek on September 24.

The issue of funding will be discussed at length by the government’s peak economic council, and issues such as the role of the financial market and banking system in the ETP will be looked into when deciding on these matters, said Jala.

Of course, if the ETP is to be successful, it has to engage and maintain the capital markets’ interest, with a slow implementation of key projects or question marks over the viability of some developments meaning that enthusiasm could wane and funds dry up.

“The market has to gauge the strength of implementation of the lead projects,” UOB Kay Hian (M) Holdings research director Vincent Khoo told English-language daily The Malaysian Star on September 25. “If successfully implemented, it will add confidence to the market.”

It will be some time before the first concrete results of the ETP can be assessed, so the early stages of the programme may have to be taken on faith by the capital markets, though if the government chooses to prime the pump on some key projects, the private sector may be more willing to take the lead in future.

 

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