The Malaysian capital market grew 12.6% to RM3.2 trillion in 2017 with total capital raised amounting to RM146.6 billion, according to the Securities Commission Malaysia (SC) in conjunction with the release of its annual report.

The capital market witnessed double-digit growth across all segments due to better economic fundamentals, corporate earnings recovery, growth in private investments, strong foreign investment inflows and higher investor participation.

“The capital market has recorded strong growth across all segments and continues to play a major role in capital formation and the financing of the Malaysian economy, while at the same time offering a wide range of opportunities for investors as reflected by a high level of participation. We will continue to ensure a facilitative ecosystem and regulatory architecture to promote trust and confidence in the market,” said Tan Sri Ranjit Ajit Singh, Chairman of the SC.

Equity market capitalisation expanded 14.4% to RM1.9 trillion, with positive performance across all key indices. Total bonds and sukuk outstanding stood at RM1.3 trillion, an increase of 10.1%.

Size of the Islamic capital market increased by 11.9% to RM1.9 trillion and Malaysia continued to maintain its leading position with a market share of 38% in global sukuk issuances.

Total fundraising of RM146.6 billion was backed by a strong upward momentum in private investments. This underscores the capital market’s depth and continuous ability to provide a facilitative and effective avenue for capital raising. Corporate bond and sukuk issuances of RM124.9 billion exceeded the RM100 billion mark for the first time since 2012. Fundraising through the equity market was also higher in 2017 at RM21.7 billion compared to RM12.8 billion in 2016.

The fund management industry grew 11.5% to RM776.2 billion, reflecting stronger investor interest in the capital market. This growth was driven by an expansion of the unit trust industry, which saw net sales of RM45.2 billion in 2017, an increase from the RM26.0 billions of net sales in 2016.

Maintaining trust and confidence 

Investor confidence is premised on the integrity of markets and their participants. The SC upholds the integrity of the capital market by ensuring the capital market operates in a fair and orderly manner, underscored by high standards of governance and conduct.

In ensuring the effectiveness of the corporate governance framework, the SC released the new Malaysian Code on Corporate Governance (MCCG) to promote greater internalisation of corporate governance practices. The three-year CG Strategic Plan also puts in place measures to promote greater transparency in disclosures and strengthen the CG ecosystem.

The SC’s supervision and surveillance efforts are concentrated on segments and firms most exposed to risk, enabling interventions when necessary. Amongst the areas identified, cyber threats posed a significant risk to the industry. Since the issuance of the Guidelines on Management of Cyber Risk in 2016, efforts were undertaken to strengthen cyber resilience in the capital market including the establishment of a Cyber Risk Working Group. This is the first step towards creating a coordinated industry-wide response against potential cyber threats and security breaches.

Other key areas of focus include conflict management by research analysts, liquidity management of funds and market abuse via social media. Thematic assessments were carried out in these areas, and appropriate pre-emptive actions were taken accordingly.

The SC continues to pursue credible deterrence through the utilization of a wide range of enforcement tools. In 2017, the SC took 62 enforcement actions which constituted criminal prosecutions, civil actions and administrative actions.  10 individuals were prosecuted cumulatively with 37 criminal charges for various offences. The SC also filed civil actions against 20 individuals for breaches of various securities laws. During the year, the courts ruled on a number of important issues resulting in landmark decisions including the imposition of custodial sentences ranging from six months to five years. During the year, disgorgements of approximately RM8.9 million were made from individuals through civil actions and regulatory settlements. The SC also imposed 32 administrative sanctions for effective outcomes.

Complementing the SC’s regulatory efforts are initiatives to empower investors through education and awareness. Supported by insights from the newly established Behavioural Analytics Unit, the SC widened the reach of its investor literacy efforts in 2017, with additional emphasis on illegal investment schemes. The InvestSmart® programmes reached more than 800,000 individuals across the country.

Facilitating sustainable, inclusive and innovative market growth

During the year, the SC worked closely with industry through four task forces on (i) Bond and Sukuk, (ii) Mid and Small Cap, (iii) Exchange Traded Funds and (iv) Venture Capital and Private Equity to pursue measures to further drive growth, scale and access across specific market segments. Furthermore, a set of initiatives were recently announced to stimulate greater vibrancy in the equity market.

The SC made progress on the implementation of the Islamic Fund and Wealth Management Blueprint. Malaysia saw the issuance of the world’s first green sukuk followed by three other issuances, collectively amounting to RM2.2 billion. To widen the range of Sustainable and Responsible Investment (SRI) products, the Guidelines on SRI funds was issued.

To facilitate greater inclusiveness in the capital market, the SC continued the implementation of its digital markets strategy. Alternative market-based financing avenues saw 651 successful deals, raising RM70 million for 150 Micro, Small and Medium Enterprises. To increase investor participation and enable better investor experience, Malaysia saw its first digital-only equities broker go live in 2017. A framework was developed to enable the offering of digital investment management services, providing investors an accessible, convenient and cost-effective channel to manage and grow their wealth.

Moving Forward

In 2018, the SC will focus on:

• Pursuing measures to enhance the vibrancy of the equity market

• Liberalising requirements for retail participation in the bond and sukuk market

• Accelerating development of a Shariah-compliant SRI ecosystem

• Continuing efforts in facilitating innovation and implementing the SC’s digital markets strategy

• Implementing corporate governance strategic priorities to strengthen the CG ecosystem

• Continuing efforts to strengthen market resilience on cyber risk

• Reviewing governance arrangements in areas of compensation and financial reporting, firms processes and controls in areas of trading oversight, sales practices and product design

• Introducing enhancements to the IPO framework to promote efficiencies in equity fundraising

In conjunction with the release of the SC’s Annual Report 2017, Guidelines on Listed Real Estate Investment Trusts was issued. The Guidelines aims to facilitate the growth of the maturing REITs market in a manner that promotes strong corporate governance practices and instils greater market confidence.

At the same time, the Audit Oversight Board (AOB) also released its Annual Report 2017. During the year, the AOB took steps to reduce the risk of future audit failures by requiring specific remedial measures to be taken by individual auditors and audit firms and referring more severe cases for enforcement. The AOB also assessed the implementation of the Enhanced Auditors’ Report through thematic reviews and a joint study with professional bodies.

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