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.
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