KUALA LUMPUR: Malaysia’s capital market used to rank in the top four among South and East Asian countries in the mid-90s.
Now, however, it is ranked 16th out of 20 Asian countries, with Indonesia overtaking us in July 2016, said economist Prof Hoo Kee Ping.
The adjunct professor for American Liberty University said Indonesia was now the “darling of investors while Malaysia has merely become a Taiko (Big Brother) among the poorer countries, above Vietnam, Cambodia and Myanmar.”
Hoo said in the mid-90s, Malaysia’s capital market was ranked fourth after Japan, Taiwan and Hong Kong.
“Now, Hong Kong’s daily capital market volume is RM30 billion.”
Malaysia’s daily capital market trade volume, in comparison, is only RM1 to RM2 billion while in Indonesia it is between RM2 to RM3 billion daily and in Shanghai about RM40 to RM50 billion daily.
Hoo — who gives talks on capital markets and currencies in Malaysia, Singapore and China — said the expansion of Indonesia’s capital market had more to do with policies implemented by Indonesian President Joko “Jokowi” Widodo since taking office in 2014.
He said Jokowi was calling on overseas Indonesian business owners to apply for tax amnesty in an effort to bring billions of dollars into the country with no questions asked and, as a result, the country was seeing a steady inflow of money.
The president’s second measure was to reduce corporate tax from 25 per cent to 17 per cent and this has attracted foreign companies to invest in the country’s infrastructure and other sectors. This, in turn, has created jobs for people.
Jokowi’s third step, Hoo said, was to work to attract USD1 trillion in investment from Japanese companies.
“With these three measures, Indonesia’s capital market will grow by another 20 per cent by the end of the year. There is a lot of cash in the Indonesian market at the moment,” Hoo said.
He said Malaysia’s corporate tax remained at 25 per cent.
For Malaysia’s capital market to do better than Indonesia, he said, Bank Negara needed to have an easier flow for the ringgit trade in and out of the country, just like the rupiah.
“In Malaysia, we practice currency restrictions on the ringgit and the flow of our currency is restricted. There is a lot of red tape for foreigners to fill up when they bring in and take out the ringgit. Of course, this makes it easier for Bank Negara to manage monetary policy but it is affecting our capital market.”
He said it was crucial to allow an easier flow of the ringgit, as this would allow Morgan Stanley Capital’s (MSCI) World Index to give Malaysia a higher rating. The MSCI provides a way to monitor international currency and investment exposure, and a higher rating would give investors more confidence in investing in Malaysia’s capital market.
At present, MSCI has given Malaysia a ratio base of 3.49 per cent, Hoo said. This is not encouraging as it would likely make investors invest only 3.49 per cent of their total investment in Malaysia.
He urged Bank Negara to talk to MSCI on ways to have a freer flow and convertibility of the ringgit for a higher benchmarking for investors.
“Bank Negara should call Morgan Stanley and look at ways to achieve a higher benchmarking. Otherwise, we will continue to lose out to other countries which practice freer flow monetary policies. It is not possible for a total free flow of a currency but it should not be restricted to a level that lowers the benchmarking,” he said.
The size of a nation’s capital market is directly proportional to the size of its economy. The United States, the world’s largest economy, has the largest and deepest capital market. This is because capital markets move money from people who have it to organisations which need it in order to be productive. They are critical for a smooth functioning modern economy.
Capital markets include primary markets, where new stock and bond issues are sold to investors, and secondary markets, which trade in existing securities.