Oleh/By		:	DATO' SERI DR. MAHATHIR BIN MOHAMAD 
Tempat/Venue 	: 	HILTON HOTEL, KUALA LUMPUR 
Tarikh/Date 	:	20/06/94 
Tajuk/Title  	: 	THE OPENING OF THE ASIAN CAPITAL 
			MARKETS: GROWTH FRONTIERS CONFERENCE 


 
    I  am  pleased and honoured to have this opportunity to
address such a distinguished gathering and to  declare  open
this  international  conference on Asian Capital Markets.  I
understand that besides participants from  our  neighbouring
countries,  we  also  have delegates from other parts of the
world.
2.    That the Conference ranks very  high  in  the  efforts
towards  creating  better  understanding and a more accurate
perception of the capital markets in Asia  is  evident  from
the  wide array of internationally renowned speakers and the
range of topics to be discussed.   I believe the proceedings
over  the  next  two  days  will  be  both  interesting  and
stimulating.
3.   Asia has caught unprecedented attention in the last one
decade.    The  spectacular  growth  of  the Asian economies
should continue to outpace the world average.  The year 1993
saw an  average  growth  of  8.4  percent  compared  to  the
sluggish world GDP growth of 2.3 percent.
4.     The Asian capital markets, riding on the waves of the
economic growth, has also reached new heights.  The turnover
of shares in terms of value has been phenomenal.    Taiwan's
turnover  was 236 percent of capitalisation, South Korea 172
percent  and  Malaysia  90  percent.    By  comparison,  the
turnover  ratio of capitalisation on Wall Street was only 53
percent and in Japan 25 percent.  The popular  cliche  'when
industrialised  nations  sneeze  Asia  catches  a  cold' has
virtually turned on its head.  Economic growth in the region
is now largely independent of the rest of the world.
5.    The triumphant development of  Asian  economies  is  a
result  of far-reaching economic reforms and liberalisation,
large  scale  investment  in  education  and  infrastructure
projects,   privatisation  of  public  enterprises  and  the
increasing flow of  foreign  investment  and  intra-regional
trade.
6.   The Asian capital markets have developed along with the
Asian  economies, rendered possible by more efficient market
operations,  automated  trading  systems,  strong  corporate
performance  and  the  opening  up  of the market to foreign
participation and funds.  The emergence of  an  increasingly
affluent  population, aware of higher long-term returns from
equities, has also assisted the burgeoning markets.
7.      Privatisation  has  contributed  very  significantly
towards  economic growth within the region through replacing
Governmental bureaucratic conservativeness  with  commercial
management  and  concern  for the bottom line.   At the same
time the flotation of  public  enterprises  has  contributed
much  towards  stock  market capitalisation.    For instance
Tenaga Nasional the National Power Co. and Syarikat  Telekom
Malaysia  together account for over 30 percent of the market
capitalisation of the KLSE.     In  Malaysia,  to  date,  94
projects  have  been privatised, with a number of them being
listed.   The privatisation exercise and listing have played
a major role in propelling the local bourse into one of  the
leading stock markets within the Asia Pacific rim.
8.   Meanwhile, direct foreign investment (FDI) continues to
be  associated  with  the  region's  economic dynamism, with
China as the largest recipient.  The increasing flow of  FDI
into   this  region  stems  from  efforts  of  transnational
corporations   to   find   cost-efficient   locations    for
international  production  and new markets combined with the
on-going relaxation of  investment  restrictions.    Another
source  of foreign funds is the foreign equity funds.  Lured
by strong economic performance,  booming  stock  market  and
superior  returns,  foreign  equity  funds  flow  into  Asia
Pacific showed a tremendous jump from US$10 billion in  1992
to US$25 billion in 1993.
9.      Intra-regional trade which currently accounts for 35
percent of total trade within the  East  Asian  region,  has
also  become  increasingly important.  Trade among countries
within developing Asia benefitted from the on-going  process
of   specialisation  within  the  region,  and  the  related
investment and relocation of  production  capacities  mainly
from   Japan   and   the   Newly  Industrialised  Economies.
Developing Asia encompasses three of the four most  populous
nations  --  China,  India  and  Indonesia  where a swelling
number of middle-class  consumers  can  be  relied  upon  to
create high demands for exports within the region.
10.    All  over  Asia's emerging markets, reforms have been
introduced to encourage  liquidity,  market  efficiency  and
transparency.     For  example,  relaxed  rules  on  foreign
participation have attracted huge amounts of money into  the
regional  stock markets.   Given the increased liquidity and
trading volumes, most bourses either  have  or  are  in  the
midst  of  computerising  trading  systems  to  ensure  that
technology, trading, clearance and settlement procedures are
sufficiently well developed.
11.    Some of the enhancements that  have  evolved  in  the
various   stock   markets  include  the  corporatisation  of
stockbroking houses,  real-time  information  dissemination,
automated  trading as well as the establishment of scripless
trading and central depositories.  Malaysia aims to complete
this process within the next three years.
12.                  A significant contributor  towards  the
development of the regional markets has been the presence of
foreign stock-broking interest which has contributed towards
greater  professionalism  and  has  lifted  the  quality  of
investment research.  Accordingly, Asia would  also  benefit
from  the  transfer of expertise from the more sophisticated
and mature markets.
13.   Stock markets by nature  cannot  be  totally  free  of
supervision.  They have to be regulated.  But the problem is
that if they are too tightly regulated, then there cannot be
the  rapid  responses to various factors which affect prices
and contribute to active trading.  If every transaction  has
to  be  scrutinised by the supervising agencies then trading
will cease almost completely.  Effectively there will be  no
market.
14.    On  the  other  hand without supervision all kinds of
unhealthy  practices  will  take  place.    In  the  end  if
unhealthy  practices  are  not checked, then there will be a
loss of investor confidence.  If things are really bad, then
again the stock market will grind to a halt.
15.  No one has really found the right  measure  of  freedom
and  supervision.   Perhaps your conference can come up with
some answers.  In the meanwhile it is clear that all efforts
are focused towards achieving sustainable economic growth as
well as transforming Asia's capital markets to the levels of
global financial markets of New York, London or Tokyo.   For
Asia, the 1990s promise to be the era of securities, i.e. of
stocks,  bonds  and  financial  instruments.    The region's
long-term prospects  would  be  driven  by  the  demand  for
infrastructure   expansion,   continued   privatisation   of
governmental functions  and  the  demand  for  international
capital flows.
16.    A  strong impetus to Asia's capital markets should be
the financing of infrastructure projects through  equity  or
loans.  An  estimated  investment  of  US$1 trillion will be
required  over  the  next  six  years  to  overcome  serious
infrastructure  bottlenecks.    Countries within this region
face a colossal  task  of  extending  or  overhauling  their
transport   system,   roads,   ports   and  airports,  power
generation and communications system in order to meet  needs
arising from higher productivity and greater urbanisation.
17.    The  strong privatisation thrust sweeping across Asia
will continue to fuel the development  of  capital  markets.
In  the  case  of  Malaysia,  some  40  projects  have  been
identified for privatisation in 1994.   These include  water
supply  projects  across  the  country and power generation.
The preferred privatisation route in Malaysia is two-staged.
The agency concerned  is  first  corporatised  in  order  to
remove  it  away from bureaucratic procedures as laid out in
the general orders under which the administration functions.
Freed from  these  restrictive  practices  the  corporatised
agency  becomes  financially  autonomous  and  hence able to
adopt commercial practices.   After about two years when the
performance improves, and they usually do, a  percentage  of
the  shares  is sold to the public.  By the time the company
is listed its shares would  have  gained  a  premium.    The
Government  may  then  sell more shares at the higher price.
The  Government  may  divest  completely  but  where  public
interest   or  national  interest  need  looking  after  the
Government may insist on a golden share.
18.  Malaysia is fortunate in that there is sufficient local
capital for the shares to be purchased by  local  investors.
Foreign  investors can buy through the market or, sometimes,
directly.  But in some countries privatisation simply  means
selling the whole agency to foreign investors with expertise
in  the field.   While this is a good way for the Government
to earn foreign exchange, the loss  of  control  to  foreign
nationals  can  cause  some painful reaction in the country.
For privatisation to really work  there  must  be  a  fairly
well-developed private sector and private capital.  Then the
capital market can develop and be healthy.
19.             Private debt securities (PDS) which forms an
alternative source of  finance  is  largely  undeveloped  in
Asia.    PDS  not only provides an avenue for investment for
state organisations and large institutions but it is also  a
cheaper source of finance for the borrowers.
20.   Recognising the enormous potential of this market, PDS
was introduced by the regulators in Malaysia's Central  Bank
or  Bank  Negara  in  1987.    Since then the government has
introduced fiscal and financial incentives to stimulate  the
market.  A fully independent and wholly private sector-owned
credit  rating agency, Rating Agency Malaysia, was set up in
1990.   The response  to  the  government's  move  has  been
tremendous  since the contribution of debt securities to the
total funds raised in the capital market rose  from  a  tiny
3.4  percent  in 1987 to 22.6 percent in 1992.  By May 1994,
this amount went up to 28 percent.    Nevertheless  this  is
still  below  the  international level whereby bonds account
for more than half of the total international capital flows.
21.  Apart from a wider range  of  products,  market  growth
could  be  further  enhanced  by  greater participation from
large institutions such as the unit trusts.   The  Malaysian
unit  trust industry accounts for only 4.3 percent of market
capitalisation with 90 percent of the industry dominated  by
two large institutions.
22.   There is a potential for greater participation by such
institutions especially when large government utilities  are
privatised.   Increasing involvement from large institutions
could quicken the pace of  privatisation  through  absorbing
new  equity  or bond issues.   For instance Malaysia's first
power project was awarded in record time  (just  18  months)
after tenders were invited by the government.  The Employees
Provident Fund expedited the matter by taking up the largest
bond issue in Malaysia's history.
23.            Given that Asia is still full of vitality and
that  vast opportunities prevail, it would be beneficial for
the region to  establish  links  or  alliances  amongst  the
countries  within  Asia.    There  is  a  wealth of regional
capabilities  and  experience  to  draw  upon.     Strategic
alliances  for  regional  cooperation  among  capital market
could pave the route towards standardising  regulations  and
developing their respective capital markets.
24.   The stock market is vital to a country's economy as it
not only facilitates the raising of funds  by  companies  to
fund new businesses and expansion but it is also often taken
as  a  barometer  of  the economic health of the nation.  As
such, the stock market enables us  to  gauge  the  level  of
confidence  among  investors  in  the  country's economy and
reflects the direction in which the economy is heading.
25.   However, at times, especially  in  the  present  trend
towards  increasing globalisation of the securities markets,
what happens elsewhere will also have an effect on the local
stock market.  For instance, despite the  continued  buoyant
economic  conditions,  the  prospects of a sustained healthy
GDP  growth  and  the  high   profitability   of   Malaysian
companies, the Malaysian equities market, in line with other
markets in the region, has become quiet.
26.  While it is accepted that the performance of the global
economy  and  especially  that  of  trading  partners have a
direct bearing on the performance of  a  country's  economy,
exceptions  should  be  noted  and taken into consideration.
Malaysia has been doing well  in  the  last  decade  despite
dismal  performance  by  its  major trading partners.   This
should influence positively those who invest  for  the  long
term.
27.    Ownership  of  shares could be a rewarding one if the
investor identifies good quality stocks and buys stocks only
when they can be had at attractive prices.   Although it  is
true  that  in  a  speculative market, one can make handsome
capital gains  if  one  picks  on  the  right  counter,  the
question is how often can one do so.
28.    Investors,  instead,  should  base their decisions on
fundamentals and strive to avoid excessive speculation.   In
this respect, the investor must make the effort to know more
about   the   company   that  he  is  investing  in.    More
importantly, the investor should not be  misled  by  rumours
and  so-called tips.  It is incredible that even experienced
investors could fall for the same rumour over and over again
despite the rumours proving baseless as many times.
29.   There is  a  need  for  a  more  concerted  effort  in
educating  the  investing  public on the fundamentals of the
stock market if one wants to develop a healthy stock market.
A nation of well-informed and knowledgeable  investors  will
certainly  go  a  long  way towards developing a healthy and
progressive stock market that can provide  the  nation  with
ample capital for its commercial development.
30.   In this respect, I would like to congratulate the KLSE
for its efforts  to  come  out  with  the  Annual  Companies
Handbook  in  the  national language, Bahasa Malaysia.  This
book will go a long way towards creating awareness among the
local investing community, particularly  those  who  in  the
past  had  stayed  away  for  lack of knowledge of stock and
shares.
31.  I wish to thank the organisers of this  conference  for
inviting  me  to officiate the opening ceremony.  I wish all
delegates every success in their deliberations.
32.  On this note, I have much pleasure  in  declaring  open
this "Asian Capital Markets: Growth Frontiers" conference.