Why Malaysia

Malaysia is a stable high-growth, advanced emerging market with a diversified and strong economic base. It has a highly developed capital market with an equity market valued at RM1.7 trillion and a fixed income market of RM1.12 trillion at the end of 2015, giving a total capital market size of RM2.82 trillion (US$705 billion). Islamic compliant instruments accounted for RM1.7 trillion or 60% of these.

Malaysia is a significant advanced emerging market in terms of equity value and is typically among the top five markets in Asia represented on the MSCI Asia Pacific Index, and the top market in ASEAN for fundraising in the secondary market. Malaysia also has the third largest bond market relative to GDP in Asia after Japan and South Korea.

Malaysia has a long history of economic and political stability, enjoying high growth rates and investment grade debt ratings among international rating agencies. The government is committed to free market policies and sees international linkages as an important part of overall economic and social development. The economy has diversified from the traditional dependence on commodities and is now strongly rooted in services, driven increasingly by domestic demand.

It has always honoured its debt obligations, has strong financials, high domestic liquidity of funds, relatively low foreign borrowings and has never had to resort to financial aid from international organisations such as the International Monetary Fund (IMF), successfully pulling out of repeated major financial crises on its own steam.

There has been an open policy towards both foreign direct and portfolio investors from the time of independence in 1957. Money can be brought in and taken out freely without any capital controls.

On top of that, the tax regime is liberal with no capital gains tax on portfolio investments and exemption of withholding tax on some categories of earnings.

A strong system of governance is in place for capital markets with specific legislation aimed at providing investor protection and assuring continuity of policies, rules and regulations. The main regulatory body, the Securities Commission Malaysia (SC), is considered to be among the best and has ensured that regulation is in line with global best practices, both in terms of regulation and promoting the development of an orderly and investor-friendly capital market.

Malaysia lies within the high-growth ASEAN market with many of its companies diversifying into key markets in other ASEAN countries. If ASEAN were a country, it would be the seventh largest in the world in terms of GDP. As ASEAN economic integration increases, there will be increasingly more opportunities for Malaysian companies and the capital market from the links with ASEAN.

The combination of stability within Malaysia and high growth within ASEAN offers unique opportunities for investors in the Malaysian capital markets. There is a diversity of financial intermediaries that are able to provide access to these opportunities, both in terms of issuance and investments.


  • High-Growth, Stable Economy

    From a strong dependence on two commodities – rubber and tin – at the time of independence in 1957, the Malaysian economy diversified into manufacturing through import substitution and export-oriented industries. For these, the government provided generous incentives to encourage foreign direct investments which remain until today.
    A stable political environment, with essentially the same party in power, provided for policy continuity. A pragmatic approach of encouraging foreign investments and plugging Malaysia into the international market with a focus on exports led to high growth over many decades, making it one of the so-called ‘tiger economies’ of the 1990s.

    Source: Bank Negara Malaysia, World Bank, International Monetary Fund
    While the ASEAN financial crisis of 1997/98 ushered in an era of currency instability and lower growth, Malaysia weathered the crisis on its own steam and became among the first countries to recover from it and record respectable, albeit lower growth. Malaysia still continues to show high, stable growth rates relative to similar countries.
    Today, the economy is highly diversified with manufacturing accounting for 23% of GDP, but services have become the mainstay of the economy, accounting for 54%. More recently, consumer demand has become the new driving force, providing some amount of insulation from the vagaries of the international economy.

    Source: Bank Negara Malaysia

    Source: Ministry of Finance
    Malaysia has never defaulted on its foreign debt and has never resorted to conditional aid from bodies such as the IMF. Its sovereign debt rating, according to the major rating agencies, continues to be investment grade. Its debt and financial ratios are generally respectable and strong domestic liquidity ensures that the dependence on foreign debt financing is not excessive.

     

    Source: Ministry of Finance

    Malaysia’s banking system is strong and stable, and is closely supervised by the central bank, Bank Negara Malaysia (BNM). Since the Asian financial crisis of 1998, a concerted effort was made to develop the bond market in order to reduce bank dependence on corporate borrowings and hence achieve greater stability of the banking system in times of crisis.

  • Open Market

    There are no capital and exchange restrictions in Malaysia. Global investors are free to buy, sell and hedge ringgit and ringgit-denominated securities. Malaysia's liberalised foreign exchange administration rules enhance Malaysia's competitiveness and business efficiency, while promoting financial and economic stability.
    The liberal foreign exchange regime enables greater trade in foreign currencies. With regards to bond issuances and sukuk (Islamic bonds), it enables foreign entities to raise ringgit and foreign currency-denominated funds from Malaysia. International issuers can issue multi-currency sukuk and bonds, and have the flexibility to swap domestic currency funding into other currencies.

  • Liberal Tax Regime

    The absence of capital gains tax and exemption of withholding tax on some forms of income contribute to the openness of the capital markets and their attractiveness.
    There is no interest accruing to any resident or non-resident individual, unit trust and listed closed-end fund from bonds or securities issued or guaranteed by the Government of Malaysia; debentures, other than convertible loan stock, approved by the SC; and Bon Simpanan Malaysia issued by BNM.
    There is also no withholding tax on coupon/interest income derived by non-resident companies from: ringgit-denominated Islamic securities and debentures, other than convertible loan stocks, approved by the SC; and securities issued by the Government of Malaysia or BNM.

  • Fiscal Incentives and Facilitative Environment

    To promote Malaysia as an international Islamic financial centre, the government has implemented measures such as tax exemptions, tax neutrality provisions and other incentives across the various Islamic finance market segments. One of the examples of tax neutrality is where Islamic finance transactions are treated similarly to conventional financing transaction for tax purposes. In addition, sale or lease of any assets that is performed strictly to meet Shariah requirements would be ignored for tax purposes.
    Malaysia's facilitative environment encompasses a sound infrastructure platform, consisting of the Electronic Trading Platform (ETP) and the Real-time Electronic Transfer of Funds and Securities (RENTAS) system to ensure transparency and liquidity for the trading of bonds. There is an active secondary market which enables greater trading activity and attracts more investors including foreign-owned corporations. Further, Malaysia provides a facilitative framework for sukuk issuance, both for local and international issuers seeking to raise funds through ringgit and non-ringgit sukuk issuances.

  • Strong Regulatory and Governance Framework

    The Malaysian capital market has a sound regulatory system aimed at creating a level playing field for all participants, providing sufficient protection for all participants and ensuring continuity of policies, laws, rules and regulations so that participants have regulatory certainty but at the same time have the space to come up with new structures and innovation to facilitate legitimate fundraising. The authorities recognise the fine balance between regulation needed to protect parties and yet facilitate growth and development.
    Malaysia's regulatory framework has been acknowledged by the IMF and World Bank to be highly compliant with international standards. The main capital market regulator, SC, believes that the successful development of a strong and credible corporate governance environment is premised on a dynamic synthesis of the effort of both the regulators and the market. Each must fully discharge its respective roles and responsibilities as an integral player of the corporate governance ecosystem that holds the market forces in balance.
    The Shariah Advisory Council of the SC advises on matters pertaining to the Islamic capital market. Members consisting of prominent Shariah scholars, jurists and market practitioners are qualified individuals who can present Shariah opinions and have vast experience in banking, finance, economics, law and application of Shariah, particularly in the areas of Islamic economics and finance.
    The Capital Market Services Act 2007 (CMSA) defines the parameters for permitted capital market activities in Malaysia, while reinforcing the protection framework and promoting international best practices among financial institutions. These and other such regulatory guidelines have been instrumental in providing industry consistency and clarity for the capital market in Malaysia.
    In addition, Malaysia's regulatory guidelines have also set benchmarks for other countries in developing their own Islamic capital markets. The legal and regulatory framework is constantly reviewed taking into consideration the latest market developments, products and Shariah issues to ensure continuous advancement.

  • ASEAN Opportunities

    The 10 members of the Association of Southeast Asian Nations (ASEAN) accounted for 622 million people in 2014, the third largest in the world after China and India. They had a combined GDP of US$2.6 trillion in 2014, the seventh largest in the world and the third largest in Asia.
    ASEAN attracted US$136 billion in foreign direct investment in 2014, accounting for 11% of such global flows, up from 5% in 2007. Trade in ASEAN increased by US$1 trillion between 2007 and 2014, with intra-ASEAN trade accounting for the largest chunk.
    ASEAN is characterised by solid growth, low manufacturing costs and a rising middle class. Demographics play a key role in ASEAN's economic growth prospects. The rising spending power of ASEAN countries and the strengthening of demand in their domestic markets have huge growth potential.
    Malaysian companies and capital markets are likely to benefit from the opportunities within ASEAN. The expected high growth in ASEAN relative to other world markets will underpin the growth of Malaysia’s own capital market.
    Malaysian companies are already diversified into key growth markets within ASEAN while the Malaysian capital market, with its diversity of products in conventional or Islamic products, is well placed to provide the right platform for ASEAN companies wishing to finance their growth plans and to open the doors to investors who want to pursue opportunities within ASEAN.
    For more statistics on ASEAN, click here.

  • Unique Offerings

    Malaysia’s economic structure and its positioning within ASEAN means its capital markets offer unique propositions to investors.
    In the equity market, there are large companies that are significantly diversified within key high-growth ASEAN economies, in addition to having a strong presence within the Malaysian market which provides their core earnings.
    The Malaysian market itself is characterised by high disposable income, strong consumer demand and rapidly increasing per capita income, leading to a growing desire for a range of consumable goods and services in sectors such as banking, telecommunications and consumer goods amongst others.
    A revamp of the banking system since the 1997/98 financial crisis has led to enhanced quality earnings from the banking sector, while limited entrants into the sector results in greater attractiveness of existing players.
    On the fixed income side, Malaysian corporates have become major issuers of bonds – both conventional and Islamic – in addition to the government. Much of Malaysian infrastructure such as independent power production, telecommunications and roads are financed by the well-developed bond market.
    Meantime, Islamic compliant products in both the equity and fixed income markets account for RM1.7 trillion or about 60% of the total market size of RM2.82 trillion, making the Malaysian capital market an ideal one for Islamic funds.
    Malaysia continues to be among the largest issuers of sukuk or Islamic bonds in the world and it has the largest Islamic assets under management in the world, accounting for 35% of the US$60.0 billion market.

  • A Diversity of Financial Intermediaries

    Malaysia's diversity of market intermediaries consists of investment banks, local and foreign Islamic banks, brokers and fund managers who engage in a number of activities ranging from underwriting complex financial transactions to advising on sophisticated transaction structures.
    Most of these intermediaries have participated in Malaysia's many notable bond issuances. They possess a proven track record and in-depth experience. Capitalising on the inherent strengths of Malaysia's intermediaries enables issuers to benefit from a smoother issuance process while reducing costs. The reputation of these intermediaries adds further credibility to the issuance.
    Malaysia's market intermediaries are also internationally recognised for their innovative capability in structuring sukuk or Islamic bonds. This is attributed to their expert use of various Islamic principles or a combination of principles to produce truly customised sukuk offerings.
    A list of intermediaries can be found here.

 

 

 

Close