Question

Features of Capital Market in Malaysia.

1. What is the overview of Capital Market in Malaysia currently.

Answer 1

Overview of Capital Market in Malaysia currently:

Introduction:

• The capital market in Malaysia has undergone a robust development since the late 1980s.
• The delisting of Malaysian and Singaporean companies from their respective stock exchanges at the end of 1989 was a milestone in the development of Malaysia’s equity market.
• With the proliferation of privatization projects and the equity boom in 1993, market capitalization exceeded that of Singapore by the mid-1990s, making the Malaysian market one of the fastest growing in the region.
• The equity market has contributed to the development of the private sector, with initial public offerings (IPOs) and issuances of new shares enabling many companies to obtain cheap financing.
• Equity investments by individual, institutional, and foreign investors increased substantially, and market infrastructure was developed accordingly.
• Computerized trading, electronic clearing and settlement, and central depository systems were in place by the end of 1997.
• The regulators, the Kuala Lumpur Stock Exchange (KLSE) and Securities Commission (SC), have been improving standards on transparency, disclosure, accounting, and corporate governance.
• But these standards still fall short of international standards, as was revealed, for instance, by the RenongUnited Engineers (Malaysia) (UEM) case in November 1997, resulting in a loss of market confidence.

Overview

• As Singapore was once part of Malaysia, companies in these two countries listed on both KLSE and the Stock Exchange of Singapore (SES) until the end of 1989.
• Since then, KLSE has taken various measures, including the introduction of computerized trading, a central depository, and efficient clearing and settlement systems, to develop market infrastructure. In addition, the regulatory framework has been reviewed to promote IPOs and equity investments by domestic and foreign investors.
• As a result, some big privatized companies (e.g., Telekom Malaysia Berhad and Tenaga Nasioni Berhad [TNB]) were listed on KLSE, making it one of the fastest-growing markets in the region in the mid-1990s.
• By the end of the 1980s, the primary market for Government bonds was relatively developed.
• The Government introduced the principal dealer system to develop the secondary market as well, and at the same time, an auction system for Government securities to promote fair pricing.
• Although the private players, in particular, obtained funds from the capital market and banks to optimize their financial assets.
• They were successful in building up corporate empires while the boom lasted.
• However, when it was over, they had to settle large debts from the banking sector and bond market. With the bankruptcy of these corporate players, nonperforming loans (NPLs) of certain banks mounted.
• Loans for share purchase contributed to an increase in banks’ NPLs. In addition, stockbrokers had been providing their customers with credit facilities for share trading.
• However, when share prices collapsed in the wake of the financial crisis starting in July 1997, banking institutions and stockbrokers incurred losses resulting from loan defaults of customers, in particular.
• The capital base of stockbrokers was not sufficient to cope with the big losses. As a result, some stockbrokers became distressed and were suspended by KLSE.