Opening of the Malaysian Capital Market Summit
Members of the media
Ladies and gentlemen
Assalamualaikum Warahmatullahi Wabarakatuh and a very good morning,
1. At the outset, I wish to thank the Asian Strategy & Leadership Institute (ASLI) for inviting me to officiate the Malaysian Capital Market Summit. I wish to congratulate ASLI for having the 13th edition of the Malaysian Capital Market Summit. As we gather here this morning, dark clouds continue to dampen the global financial markets. The collapse of Lehman Brothers and before that Bear Sterns as well as the re-capitalisation of banks and financial institutions in the United Kingdom, the United States, Europe and elsewhere have elucidated the seriousness of the global financial crisis which some economists have described as the worst since the Great Depression.
2. The on-going bailouts and bank re-capitalisation which some have refer to as a new era of bank nationalization marks the further unraveling of the US and now global credit crisis. Some emerging markets are facing debt defaults as their currencies slumped against the US dollar and their export earnings fall. Pessimists may think we face a period of deflation and deleveraging of gigantic proportions. The capital market has often been regarded as a barometer of a country’s economic health but the dramatic falls in stock markets all over the world over the past few months have caused trillions of dollars to be lost. There is continued market volatility around the world which will fuel bankruptcies and bailouts.
3. In Malaysia, whilst our stock market has dropped by 40% (as at 1 December 2008) this year, the fundamentals of our national economy remain healthy despite hundreds of billions of ringgit being wiped out in Bursa Malaysia. Relative to the regional markets, where we have seen various regional markets fallen between 42% and 64%, Malaysian equity market seems to be more resilient and holding better than others in the regional market. The Malaysian financial market has demonstrated financial soundness and is an efficient market that has been able to continue with its job of pricing assets in a fair and orderly manner. These strengths in our capital market are derived from the lessons we, both regulators and investors, have wisely learnt from a decade ago. Short-selling activities are already curtailed and trading activities are relatively transparent with low exposure to foreign risks and margin accounts.
4. We recognize that the reduction in market capitalization or this negative wealth effect would dampen domestic consumption and private demand but it is heartening to note the fundamentals of our economy remain robust. However, as stated earlier, I am not oblivious to the on-going global financial turmoil and certainly not under estimating the problems. The Government is always monitoring the situation and we have announced measures to stimulate the Malaysian economy. We recognize that Malaysia being an open economy and a major trading nation where exports account for 200% of our GDP, will not be spared from the contagion effects of the global turmoil which inevitably will lead to weakening global demand.
5. But, let me re-state the economic fundamentals of Malaysia.
Firstly, we have a Government which is pro-business and market friendly, and a proven 50-year old track record of prudent economic and financial management.
Second, our foreign reserves (as at 14th November 2008) remain high at USD 99.7 billion sufficient to finance more than 8.1 months of retained imports and 3.7 times short-term external debt.
Third, our banking system remains resilient and there is sufficient liquidity in the system. We have in Bank Negara, Central Bankers who have experienced the Asian financial crisis and have capable risk management.
Fourth, we have a robust and strong capital market in the form of our intermediaries institutions, regulatory framework and products. This is confirmed by the recent assessment by the International Organization of Securities Commissions (IOSCO), where we achieved a 97% mark, indicating high level of compliance and affirming our effort towards investors protection and maintaining market integrity and stability.
Fifth, we have well diversified export markets with a marked increase in intra-Asia trade and hence less reliance on the US market.
Sixth, domestic spending and private demand remains strong despite the rise in fuel and food prices and the drop in stock prices.
Finally, our GDP growth has been commendable in the first nine month of 2008, chalking up 6.2% growth, although we expect GDP growth to be slower next year, growing at 3.5%.
I wish to assure all investors that the Government, through its National Economic Council, which meet regularly every week, in fact, will actively monitor global and local developments and will come out with further appropriate monetary, fiscal and macro-economic responses from time to time to restore and maintain investor confidence. We must improve Malaysia’s value propositions for investors so that we remain relevant to investors and remain on their radar screen.
Ladies and gentlemen,
6. We would need to take cognizance of the recession that will affect many countries around the world. Many broking houses estimated that US GDP will decline further in the 4th quarter of this year and possibly heading into recession in 2009. European countries will have steeper GDP falls until perhaps the last quarter of 2009. Britain’s GDP shrank 0.5% in the 3rd quarter whilst Singapore is already in a technical recession. The Deputy Governor of the Bank of England, Mr. Charles Bean said, “This is a once in a lifetime crisis and possibly the largest financial crisis of its kind in human history”.
7. Let me also quote the Prime Minister of Britain, Gordon Brown who said, “This isn’t the time for conventional thinking or fresh dogma but for fresh and innovative intervention that gets to the heart of the problem”. It is imperative that the G8 countries come to grips with the seriousness of the global financial turmoil, so that the capitalistic system as we know it do not break down or collapse amidst rising bank failures, bankruptcies and market meltdown. The global financial system needs to be urgently reformed, Malaysia has been calling for this since 10 years ago. Within the region, there should be an Asian Monetary Facility or perhaps a new Asia Monetary Fund to be established. This is not a new idea but perhaps the seriousness of the current crisis should lead to further conversations and discussions on the idea of creating a Asia Monetary Fund. This is an idea that needs to be debated and discussed in greater depth by leaders and Finance Ministers of Asia. We need to address this issue quickly and urgently so that Asia can better deal with the crisis of confidence affecting markets and financial institutions in Europe and the U.S in order to mitigate the effects on Asia.
8. In Malaysia, let me assure you, the Government will continue to be proactive. We will listen to the Voice of Business and Market. We welcome constructive feedback from investors both foreign and local. We shall continue to engage in dialogue so that together we can work out strategies and solutions to deal with the current economic quagmire. The Government is receptive and open to ideas and we hope you, the investing community, will come forward with your proposals and views, which we shall take seriously. I consider today’s Capital Market Summit to be apt and timely as it provides us with the opportunity to hear from you. I hope ASLI and the Securities Commission will send us a report on the conference proceedings and the recommendations put forward and I assure you that we shall give these proposals serious consideration.
Ladies and gentlemen,
9. On the part of the Government, we have announced several economic stimulus measures recently and we have also cut our Overnight Policy Rate (OPR) and Statutory Reserve Rate (SRR) rates to 3.25% and 3.5% respectively in order to support domestic demand and lower the cost of borrowings for businesses and households, We shall monitor developments and if necessary further measures may be introduced. What is important is that we restore investor confidence in Malaysia. We will work hard to address issues of concerns faced by foreign and local investors and continue to gradually liberalise the Malaysian economy, particularly in the services sector. In this era of globalization, liberalization is no longer an option. It is a necessity for Malaysia in order to remain competitive and relevant to investors. We shall gradually remove hindrances to foreign investments and ensure that Malaysia remain competitive and productive. Efforts to reform the Malaysian economy will continue. We need to ensure economic sustainability that economic growth in Malaysia remains sustainable.
10. The Malaysian Government will focus on enhancing the delivery system so that the ease of doing business in Malaysia can be further improved. We need to also enhance accountability and transparency in Malaysia. We recognize the importance of transparency, for transparency will remove suspicions in the perceptions of foreign investors. The Government has already undertaken various measures to improve transparency in the procurement process through more open tenders and bidding. Reforms in the Government Linked Companies (GLC’s) continue to be on track and have resulted in marked improvement in the performance of GLC’s through Key Performance Indicators (KPI’s). Corporate governance will continue to be improved. In these trying times of grave strategic challenges, ethical leadership becomes even more important. There can be no compromise for integrity. Earlier when I announced a RM5 bill increase in allocations for ValueCap, there were some concerns expressed over whether ValueCap will be used to bail out politically connected individuals or GLC’s. I wish to give a categorical assurance that ValueCap will be used for value investing and will not be used to bail out anyone. It will continue to be professionally and ethically managed with no political interference in its investment decisions.
11. I believe that Malaysia has comparative advantage to develop into a Regional Hub for Islamic Capital Markets. The global financial turmoil has necessitated new financial instruments that are durable. Sukuks and Islamic Finance have held up well during this period of financial crisis. I believe Sukuks and Islamic instruments have potential of growing and gaining more widespread international recognition. It is therefore possible for Kuala Lumpur to become a leading Centre for Islamic Capital Markets. Malaysia is already the leading issuer of Islamic Sukuks. Greater efforts should be made to turn Bursa Malaysia into an Exchange of Choice for Islamic Capital Market products and instruments. The Ministry of Finance will work closely with the Securities Commission and Bursa Malaysia to develop Malaysia into a leading world-class Centre for Islamic Capital Market.
Ladies and gentlemen,
12. In addition, I would also like to propose that the Securities Commission and Bursa Malaysia pro-actively look into how Malaysia can attract more portfolio investments from the Asian region, namely China, India, and ASEAN countries to invest into our Stock Exchange. We can deepen our bilateral relationship with these countries by attracting more companies to list on Bursa Malaysia. For instance, China has enormous foreign exchange reserves which amount to larger than the combined reserves of all the G7 countries added together i.e. over USD2 trillion. China’s total investments in USA have been estimated to be between USD250 – USD400 billion. The Chinese Government has encouraged Chinese companies to go abroad. Last year alone and up to October this year, China’s outward investments amount to USD40 billion. China has for a long time experienced a fiscal stimulus which in 2007 amounted to USD6 trillion. Hence, there is potential in attracting more Chinese investments, including Chinese portfolio investments into Malaysia. Singapore and Hong Kong have benefitted from an inflow of Chinese investments. There is no reason why we in Malaysia cannot do so, particularly with the strong bilateral relationships between our two countries. What we need is to have a clearly developed plan and strategy to attract more investments from the region into Malaysia.
13. Let us therefore work together to turn this crisis into opportunity. In this time of global economic uncertainty and a global financial crisis, all Malaysians should work closely together so that we as a nation we can overcome our economic challenges. This is a time for us to restore stability, predictability and certainty in Malaysia for these have been the corner-stones of our economic development, prosperity and progress as a nation.
14. We have built prosperity for Malaysia and Malaysians because we have a Government which is stable, united, liberal and pro-business. This predictability, stability and certainty in our system of governance must be restored. This is no time for politicking or to score points politically. The General Election is over. Let us unite and concentrate on building our nation, of overcoming the economic challenges ahead, and of creating opportunities for all Malaysians. We shall be just and fair to all. This is a time when we as a nation must come together and unite to face the grave external economic challenges ahead. At the same time, we need to build our internal resilience. National unity and justice for all are of paramount importance. We should reduce wastage, promote efficiency and upgrade our productivity.
15. Going forward, we need to continue to remain vigilant to new global and regional developments. We must quicken efforts to enhance national competitiveness. History has shown that bear markets come and go, no matter how bad the situations may appear. Eventually the bear dies and a new bull is born. So to investors, I say don’t be despondent with the market. Plan your investment strategy well. Study the market to identify building opportunities. The current market may offer great opportunities for investors. Seize the investment opportunities as they arise. The Government will do whatever possible to ensure that confidence in the Malaysian market remains high, backed by our strong economic fundamentals.
16. On this note, it gives me great pleasure to open this 13th Malaysian Capital Market Summit.
Deputy Prime Minister’s Office
4th December 2008