Download economy overall pipeline malaysian capital raising expected at rm75b

Q3 2015 NEWSLETTER
Overall pipeline Malaysian capital raising expected at RM75b
11 ASEAN funds approved
Najib’s economic stimulus
lifts stocks
RM60b of ringgit bonds waiting
to be sold - analysts
Islamic finance goes global,
but Malaysia still leads the way
ECONOMY
OVERALL PIPELINE MALAYSIAN CAPITAL RAISING EXPECTED AT RM75B
Kuala Lumpur: The Malaysian capital market is healthy despite the current volatility in the
economy, with the overall pipeline for capital raising expected to be about RM75 billion this year.
Chairman of the Securities Commission Malaysia, Datuk Ranjit Ajit Singh, said out of the RM75
billion, about RM70 billion would be from the bond market and the rest from the equity market.
"For the last few years, we have about RM90 billion capital raised from the initial public offerings
and the bond market," he told reporters after the launch of the World Capital Markets Symposium
here Thursday.
The two-day symposium is a platform to promote informed debate on the capital market led by
global opinion leaders, policymakers, domain experts and market leaders.
Ranjit said the volatility in the economy was a global phenomena affecting many emerging
markets and for the Malaysian capital market to have a capital-raising pipeline of about RM75
billion was quite encouraging.
"Any market, both domestic and foreign, that is open and committed to having investor
participation must be prepared to face volatility in their market.
"Malaysia has demonstrated that its market is resilient and developed a very diversified financial
system, with RM1 trillion bond market and RM1.3 trillion equity market currently," he said.
Meanwhile, capital market players must identify, understand and appropriately mitigate potential
risks in the market pertaining to cyber security, investor protection and market integrity.
Ranjit said for the market to fully serve its economic role, it must not only be safe but also be
purposeful and accessible to the millions of consumers and businesses.
He said naturally occurring market failures such as information asymmetry and monopolies
resulted in pockets of underserved users of the financial system, which dampens the dynamism
of the overall economy.
"A potential solution to this issue may lie in technology, which is transforming the capabilities of
financial markets and disrupting the traditional value chain of businesses with breathtaking
speed.
"By improving the customer service experience while broadening access and reducing costs,
technology may potentially result in significantly more efficient and inclusive markets," he said.
He said the growing financial technology or fintech currently has its significant potential to disrupt
the business model of incumbents and appeal to a wider audience by promising user-friendly
services that transcend demographic, geographical and infrastructure barriers.
The symposium was also attended by the Prime Minister Datuk Seri Najib Tun Razak.
During his keynote address, Najib announced the establishment of the Alliance of FINtech
Community, or aFINity@SC, which aims to connect fintech entrepreneurs with investors,
researchers, mentors and relevant government agencies.
The aFINity@SC is put under the SC as the driver in spearheading the initiative.
Ranjit said it was essential for policymakers and the private sector to work together in nurturing
the market to ensure that the anticipated growth in fintech became a reality.
"As a regulator, I strongly believe that we could play a facilitative role in a number of ways to
provide the much-needed financing for fintech entrepreneurs," he added. – Bernama
*This news was sourced from Daily Express~
http://www.dailyexpress.com.my/news.cfm?NewsID=102927
FUND MANAGEMENT
11 ASEAN FUNDS APPROVED
THEY QUALIFY FOR ASEAN COLLECTIVE
INVESTMENT SCHEMES
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KUALA LUMPUR: A total of 11 funds from Malaysia, Singapore and Thailand have been
approved by the respective regulators as qualifying ASEAN Collective Investment Schemes
(ASEAN CIS) under the respective frameworks.
These funds, once approved by the “host” regulators, would enable their offering in the said
countries without having to go through stringent or duplication of processes. Of the 11 funds, five
are from Malaysia and Singapore each, while the remainder is from Thailand.
“The initiative is to make CIS an asset class in itself. The idea is that the funds that are offered in
one ASEAN jurisdiction should be all right to sell in another, with minimum regulatory obstacles.
Without it, it is not possible at all to sell, say, Malaysian funds in Thailand or vice-versa because
they only permit funds that are created and offered by fund-management companies that are a
resident of that country,” Tipsuda Thavaramara, Thailand Securities Exchange and Commission
assistant secretary-general, told StarBiz in an interview.
Securities Commission executive director for corporate finance and investments Eugene Wong
said that of the five Malaysian funds, four have already been recognised by the Monetary
Authority of Singapore.
“Malaysia is in the process of recognising one of the Singapore-qualified CIS,” he told StarBiz.
Malaysia together with Singapore and Thailand had signed a memorandum of understanding in
March this year to establish the Streamlined Review Framework for the ASEAN Common
Prospectus, which could expedite the review and approval process for cross-border initial public
offerings.
Thavaramara said the condition under the framework is that for a fund to be sold under this
scheme, it has to be accepted by the home regulator and can be sold in the home jurisdiction
first.
“In order words, you can’t have a Thai fund that is not sold in Thailand selling in Malaysia. They
don‘t accept that yet. They want some degree of skin in the game,” she said.
In 2009, one of the objectives under the ASEAN Capital Markets Forum (ACMF) plan was to
support the objective of freer flow of capital, mainly because the bulk of savings in the Asean
region was being “recycled” elsewhere rather than within the region.
“You may find people who have money in ASEAN going through a private banker investing in an
US fund that maybe comes back as an ASEAN infrastructure fund. Or, you will find that people
actually don’t have the money to invest directly in say 10 shares in every country because they
need a pooling vehicle to do so,” said Wong.
In the past, there was no direct access to foreign mutual funds. Instead, it was through a local
feeder fund.
Requirements for a fund to get through the approval process include the fund operator having a
five-year minimum track record, as well as assets under management of at least US$500mil.
“You don’t need to be a regional player to play the regional game. It could be a local partner who
is also a standalone,” said Thavaramara.
The ASEAN CIS framework is an initiative undertaken by the ACMF to encourage intra-regional
investment flows and transactions.
The framework, adopted by Malaysia, Singapore and Thailand so far, allows fund managers
operating in a member jurisdiction to offer CIS, such as mutual funds, constituted and authorised
in that jurisdiction to retail investors in other member jurisdictions under a streamlined
authorisation process.
To be a part of the ASEAN CIS, jurisdictions would have to be willing to amend their laws a little,
said Thavaramara.
“If a qualifying fund comes from another country, and they say they are qualified, then you have
to speed up the approval process, although technically, you have the authority to reject. For
some jurisdictions, it might amount to some giving up of some authority to explicitly say that they
will rely on another jurisdiction’s work,” she said.
She added that the exercise the participating jurisdictions had to undergo to come up with the
regime resulted in a better understanding of their own process and other jurisdictions’ processes.
Wong said it was encouraging that now Vietnam and Indonesia had signed on as signatories.
He said to ease communication and selling of the approved funds, the fund management
companies would appoint a local distributor and representative in the host country. “So there is
some control there because the local guys won’t missell. Once you are recognised by the home
regulator, the host regulator will approve you in the same time as it would a domestic fund.”
He added that the mutual fund represented a very big growth market in ASEAN. Malaysia,
Singapore and Thailand have a market penetration rate of 25.4%, 4.2% and 24.1%, respectively.
Meanwhile, Indonesia and the Philippines have a 5.2% and 7.1% penetration rate.
*This news was sourced from The Star Online~
http://www.thestar.com.my/Business/Business-News/2015/09/04/11-Asean-funds-approved/?style=biz
EQUITIES
NAJIB’S ECONOMIC STIMULUS LIFTS STOCKS
Sentiment on Bursa Malaysia was boosted yesterday after Prime Minister Datuk Seri Najib Razak
announced broad-based stimulus measures aimed at strengthening the economy.
Analysts said the market welcomed a RM20 billion injection from the government as the FBM
KLCI gained 2.25%, or 36.03 points, to 1,639.63 at the end of the trading day, while the FBM
Emas Index increased 1.99%, or 219.72 points, to 11,248.84. However, gains in the FBM Small
Cap index were muted as the index increased only 0.37% to 14,505.68 points.
The promise of a RM20 billion injection into ValueCap Sdn Bhd was a positive for investors,
which will then be used to invest in undervalued Malaysian companies. To give some context,
RM20 billion represents about 2% of the KLCI’s market capitalisation of RM944.21 billion as at
yesterday’s close.
Established in 2002, ValueCap is an equity investment firm that is owned by Khazanah Nasional
Bhd, Kumpulan Wang Persaraan (Diperbadankan) and Permodalan Nasional Bhd.
Hong Leong Investment Bank Bhd economist Sia Ket Ee is of the view that the additional fund
would help to restabilise the local equity market and give investor confidence a much needed
boost.
This confidence, reflected in the better performance of the stock market yesterday, could
translate into investors realising that the economic fundamentals are still strong which would end
up benefiting the economy, said Sia.
Inter-Pacific Securities head of research Pong Teng Siew, however, believes otherwise. He
opined that the RM20 billion injection into ValueCap would have a limited impact on the real
economy.
He does not think that there is a pressing need for the fund at this present time to be injected into
the stock market as the market has not fallen to levels so low that it would require such
assistance.
Currently, the KLCI trades at a price-earnings ratio of 16.65 times, which is valued higher than
Singapore’s Straits Times Index at 12.91 times. In 2014, the benchmark index was priced at
16.29 times.
“Yes, it will make money for investors but stock prices are asset prices and underlying volume of
business activity of a company are two different things,” Pong said.
Pong added that the fund could lend some assistance to the Employees’ Provident Fund (EPF)
whose profit this year could come under pressure due to the volatile performance of stock
markets.
“It may help the EPF and give it some leeway to maintain the dividend the fund declared last
year,” he said.
AllianceDBS Research head Bernard Ching said ValueCap’s effectiveness in helping to support
the market through the additional RM20 billion would depend on whether there is sustained
selling pressure from foreign investors and how quickly and effectively the fund could be
deployed.
“Over the near term, bombed-out KLCI component stocks and government-linked companies
(GLCs) are likely to be the target of buying support by ValueCap. While this injection alone
cannot alter the fundamentals and direction of the market, we expect it will moderate market
volatility going forward,” he said.
Yesterday, the prime minister once again urged GLCs as well as the private sector to repatriate
their profits overseas and invest locally.
Ching said this move will definitely be a boost for the Malaysian economy. He said the focus of
new investments must be in new growth areas in order to avoid crowding out private investors,
given Malaysia’s relatively small population and the current dominant position of GLCs in the
domestic economy.
EPF chief executive officer Datuk Shahril Ridza Ridzuan said in a statement yesterday that
domestic investments continued to be an integral part of the fund’s investment.
“The EPF is constantly seeking appropriate local investments and will actively invest in long-term
strategic industries and companies. In recent months, we have also been encouraging our global
partners to invest with us in Malaysia.
"This includes our recent logistics hub with the Goodman Group of Australia and separately, with
several global pension funds,” he added.
Other measures announced by the premier yesterday included an exemption on import duty for
factory sectors, an additional RM2 billion for small and medium enterprises under the working
capital scheme, RM80 million for the tourism sector to boost promotional activities in ASEAN,
China and India as well as a housing loan assistance of RM200 monthly for two years to be
extended to 20,000 married couples aged between 25 and 40 years earning below RM10,000 per
month for the purchase of their first home valued between RM100,000 and RM500,000.
Sia said these measures bode well to safeguard gross domestic product (GDP) growth.
He added that Budget 2016, which will be presented next month, will probably present the
fine-tuning of these measures and a focus on the cost of living.
In a separate statement, CIMB Group Holdings Bhd group chief executive Tengku Datuk Zafrul
Tengku Abdul Aziz said if all the economic stimulus measures announced yesterday are executed
well, GDP growth could actually be closer to the upper end of the official target of 5.5%.
He noted, however, there may be some time lag before the full positive effects work through the
financial and capital markets and in turn, the real economy.
The ringgit was largely unmoved yesterday, to close up 0.16% to 4.31 against the US dollar. The
local currency has lost almost 19% of its value against the greenback so far this year, while the
KLCI has retreated 8.95% this year. – digitaledge Daily, September 15, 2015.
*This news was sourced from The Malaysian Insider~
http://www.themalaysianinsider.com/malaysia/article/najibs-economic-stimulus-lifts-stocks
EQUITIES
FUNDS LIKELY TO FLOW BACK TO EMERGING MARKETS
KUALA LUMPUR: There is still ample liquidity in the market and funds will flow back to emerging
economies though at a more discriminated basis, according to Pascal Blanque, global CIO of
Amundi Asset Management, which manages over US$1 trillion in assets,
“There is a non-discriminative wave of risk diversion. Moving forward, there will be more
discrimination across countries on a fundamental basis.
“There will be a point where we will see inflows back into the emerging economies benefiting the
ones that are showing the strongest fundamental. This is clear,” the European CIO of the Year
2013 told StarBiz.
Blanque said there were also cyclical elements like the impact of the US Federal Reserve and
current adjustments. He said the fear of a potential rate hike by the Fed was overdone.
He said what happened in China was part of the global move that is lacking of confidence
towards emerging assets.
“What we are seeing at the moment and has started again before the Chinese event. It is a
remarking on a non-discriminative country by country fundamental basis. In the first phase, we
have seen markets focusing negatively on South Africa, Turkey and Brazil and this process is
ongoing.”
“My point is that the move is not Malaysia specific. It is a global move within the emerging
economies,” he said.
Blanque said part of the event was related to the fact that people suddenly realised that
eventually the 7% growth rate was not sustaining.
“There’s is no bad guy in the game. What we can say was that there was an excessive focus on
foreign exchange and currencies.
“The big focus should be on the internal demand, rebalancing of economy in China in this case.
This is also the case in Malaysia and structural reforms. This is what we are seeing at the
moment,” Blanque noted.
He said price adjustment was ongoing and markets were trying to adjust the risk premium on
various assets like bonds, equities, external debt and local currency debt.
“This is an adjustment of risks premium. At the time when risks premium were generally tight
across assets classes, note that no assets were overvalue but risks premium was tight. On the
other hand, some currencies were not particularly cheap, some assets were tight. Some equities
markets were neutral to slightly overvalue.
“With uncertainty coming, investors are looking for higher risks premiums,” Blanque opined.
Despite the volatile market condition, he said there were still plenty of liquidity in the market.
“Europe and Japan are pouring liquidity into the market. There is still ample of liquidity in the
market searching for yield. We can’t say we’re facing bubble in all assets class.
“Stay calm. The world does not change overnight. Fears are overdone,” Blanque said.
He said Malaysia “score reasonably well” and its financial market was “deep”.
“There are real strength from fundamental stand point. The country is also committed to reform
and has deep financial market,” he added.
Meanwhile, Amundi marked its entry into the distribution market in Malaysia with the launch of its
two inaugural wholesale feeder funds – Amundi Bond Global Aggregate Fund and Amundi
International Fund.
“Amundi Malaysia Sdn Bhd currently has over US$4bil of asset under management for our
sovereign and institutional clients.
“We are now entering an exciting phase in our development and is looking to provide investment
solutions that cater to the needs of the local investors,” Amundi Malaysia managing director
Roslina Abdul Rahman said.
Amundi Malaysia will be rolling out two wholesale funds which will address the needs of
sophisticated investors that could weather different investment cycles and time horizons.
In addition, it is expanding to include dedicated local sales and client servicing professionals who
have access to Amundi’s global resources and marketing capabilities to support its distribution
partners.
The two wholesale funds authorised to be sold to investors in Malaysia will be feeder funds to
Amundi’s flagship funds, Amundi Funds Bond Global Aggregate and First Eagle Amundi
International Fund, with over eight and 19 years outstanding track record respectively.
Amundi is the partner for 100 million retail investors worldwide whose US$275bil in assets are
managed through banking networks, third-party distributors, private banks, platforms and fund
selectors.
*This news was sourced from The Star Online~
http://www.thestar.com.my/Business/Business-News/2015/09/07/Funds-likely-to-flow-back-to-emerging-m
arkets/?style=biz
FIXED INCOME
RM60B OF RINGGIT BONDS WAITING TO BE SOLD - ANALYSTS
KUALA LUMPUR: Some RM60 billion Malaysian ringgit-denominated bonds may be sold within
the next one year, a move which will further weaken the currency, according to MIDF Amanah
Investment Bank Bhd.
In a note today, MIDF said it anticipates pressure on the ringgit to continue, as foreign ownership
in the Malaysian debt market was about RM68.8 billion higher, as compared to the January 2011
level.
MIDF said "the significant depreciation of ringgit was due to the selling of MGS (Malaysian
Government Securities). Data from central bank showed that foreign holdings of MGS were
reduced by RM8.0 billion in August, the highest in 25 months. On the other hand, total foreign
bond and sukuk holdings were down by RM8.9 billion, highest value year-to-date."
"We expect there will be at least RM60 billion worth of debt securities still waiting to be sold in the
market, which we would expect to be done in 6-12 months period, depending on the factors
affecting the pace mentioned above. As long as foreign investors are not done with their asset
selling, it would be difficult for ringgit to recover to its previous level," MIDF said.
Yesterday (Sept 8), the ringgit depreciated to a fresh level against the US dollar at 4.3713. Today,
the exchange rate was 4.3062 at about 10:30am.
The current rate compares with 3.1845 a year earlier. Today, MIDF said the ringgit's strength
would take the cue from global and domestic factors, which include higher US interest rates.
"The gradual selling of debt securities in Malaysia is expected to continue, as the United States
will definitely increase their interest rate moderately. The main concern for Malaysia (and other
emerging markets) is more on the pace of the selling.
"Downward pressure on oil price, domestic political instability, dampening economic data and
faster-than-expected increment in the Fed interest rate, all of these will lead to a faster pace of
asset selling in Malaysia and eventually put a stress on the ringgit," MIDF said.
*This news was sourced from The Edge Markets~
http://www.theedgemarkets.com/en/article/rm60b-ringgit-bonds-waiting-be-sold-analysts
FIXED INCOME
SAPURAKENCANA MAKES FIRST SUKUK ISSUANCE OF US$200M
KUALA LUMPUR: Oil and gas player SapuraKencana Petroleum Bhd has made its first issuance
of US$200mil (RM845.8mil) sukuk under the multi-currency sukuk programme.
The company said in a filing with Bursa Malaysia that its unit SapuraKencana TMC Sdn Bhd
(SKTMC) will use the proceeds to refinance some existing debt.
“Process raised from this inaugural issuance will be utilised to part refinance SKTMC existing
financings. The unrated sukuk is structured based on the Shariah principle of commodity
Murabahah (via Tawarruq arrangement),” it said on Tuesday.
The sukuk offering is the first to be launched under the new Securities Commission Guidelines
on Unlisted Capital Market Products under the Lodge and Launch Framework effective June 15,
2015.
The company announced last week that SKTMC had signed the transaction documents for the
inaugural multi-currency Islamic medium-term note.
For more information on the Lodge and Launch Framework , please refer to
http://capitalmarketsmalaysia.com/sc-introduces-major-reform-in-approval-regime-with-lodge-and-launchframework-initiative-significantly-shortens-time-to-market-for-wholesale-products/
*This news was sourced from The Star Online~
http://www.thestar.com.my/Business/Business-News/2015/09/08/SapuraKencana-Petroleum-makes-firstsukuk-issuance-of-US$200mil/?style=biz
ISLAMIC CAPITAL MARKET
ISLAMIC FINANCE GOES GLOBAL, BUT MALAYSIA STILL LEADS THE WAY
Islamic finance is going global. South Africa has joined the UK and Hong Kong to become the
third non-Muslim country to issue an Islamic bond or sukuk. And this follows American investment
bank Goldman Sachs raising US$500m from its first Islamic bond sale. These moves reflect the
desire to effectively tap into the wealth of Muslim investors around the world.
Fuelled by booming industries in the Middle East and South-East Asia, the Islamic finance
industry is booming. Forecasts estimate it will double over the next five years to more than
US$3.4 trillion. The two global centres for it are currently Malaysia and the UAE (where Goldman
is issuing its sukuk). But London too has staked its claim on standing alongside Dubai and Kuala
Lumpur.
Playing host to the 9th World Islamic Economic Forum last year, London appeared to make a
deliberate challenge to rival the traditional Islamic financial powers. Opening the forum, David
Cameron said:
London is already the biggest centre for Islamic finance outside the Islamic world … I want
London to stand alongside Dubai and Kuala Lumpur as one of the greatest capitals of Islamic
finance anywhere in the world.
London followed this up by launching a £200m sukuk in June 2014 and a groundbreaking new
Islamic index on the London Stock Exchange. But can the non-Muslim power really challenge the
traditional centres and how do they compare?
In terms of market share, Malaysia leads the pack with 16 fully-fledged Islamic banks including
five foreign ones. Its total Islamic bank assets total US$135 billion (£82.7 billion), which accounts
for 21% of the country’s total banking assets. By comparison the UAE has seven fully-fledged
Islamic banks accounting for US$95 billion of assets and this represents around 19% of its total
banking sector. Meanwhile, the UK has just six Shariah-compliant financial institutions, with total
assets of US$19 billion.
If we focus on Islamic capital market development, Malaysia is once again a long way ahead of
its competitors. The country boasts more than 60% of the global sukuk market amounting to
US$164 billion worth of outstanding sukuk in the first half of 2014. London on the other hand has
US$38 billion of outstanding sukuk raised through 53 issues on the London Stock Exchange
since 2009. Dubai fares the worst with just US$21.08 billion as of May 2014 in sukuk on its
exchanges. In fact state-owned companies in the UAE have gone to London to seek further
capital.
But Goldman Sachs' debut sukuk was, of all the favourite Islamic finance locations, listed on the
Luxembourg Stock Exchange. Intent on avoiding the controversy of their failed 2011 sukuk,
Goldman this time adjusted the sukuk structure and enlisted several heavyweight Gulf banks
including Abu Dhabi Islamic Bank, the National Bank of Abu Dhabi, Dubai’s Emirates NBD
Capital and the investment banking arm of Saudi Arabia’s National Commercial Bank to arrange
the sale.
This is only the second such deal from a conventional bank outside a predominantly Muslim
country and so a significant step in Islamic finance going mainstream. It will also act as a big
boost for GCC investment banks and give one more thumbs up for Dubai as the centre for
Islamic finance.
Malaysia is also way ahead when it comes to regulating Islamic finance. Malaysia passed an
authoritative Islamic Financial Services Act in 2013, which built on its earlier Islamic Banking Act
of 1983 to oversee operations within the country. Dubai, London and other would-be centres
meanwhile both rely on their common banking law with some Islamic finance add-ons to govern
Islamic finance operations.
In relation to the Islamic finance education infrastructure, the UK is actually ahead of the game.
The UK has been ranked as the global leader in Islamic finance education with more than 60
institutions offering Islamic finance courses and 22 universities offering degree programs
specialising in Islamic finance.
Malaysia and the UAE followed. Malaysia has 50 course providers and 18 universities offering
degree programs, while the UAE has 31 course providers and nine universities offering degree
programs. But when it comes to research output in Islamic finance, Malaysia stood first with more
than 100 peer-reviewed research papers released in the past three years. The UK followed with
56 peer-reviewed research papers and there was no data available for the UAE.
Based on the above observations, it is apparent that Malaysia is still the superpower of Islamic
finance. But with the recent developments in the rival centres this position is going to be under
continuous threat.
The Islamic Development Bank has set up a US$10 billion sukuk issuance program on the
Nasdaq Dubai exchange that will be a big boost to Dubai’s efforts to become a top centre for
Islamic finance. And London, which is already a global financial centre, is making its moves to
bolster Islamic finance from education to cultivating relationships with Muslim banks and
investors.
Malaysia, however, still has the advantage of a vibrant market in sukuk issuance, thanks to the
Islamic hinterland of Southeast Asia and a good reputation for strong Islamic finance regulation.
So, it’s not a surprise that other international banks are going there to do business. And we can
expect this to continue for the foreseeable future. But how Malaysia reacts to its competitors and
can maintain its position is another matter.
*This news was sourced from The Conversation~
http://theconversation.com/islamic-finance-goes-global-but-malaysia-still-leads-the-way-27347
WORLD CAPITAL MARKETS SYMPOSIUM 2015
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