ENHANCING THE INTERMEDIATION PROCESS
IN THE CAPITAL MARKET
PRESENTATION BY
Baljeet Kaur Grewal
DIRECTOR & CHIEF ECONOMIST
KUWAIT FINANCE HOUSE (MALAYSIA) BERHAD
29 March 2007
1
CONTENT
Intermediation in Asia
Intermediation Channels In The Capital Market
Malaysian Bond Market
2
Global Economic Outlook: Driven By Asia & GCC
EU
2005: 1.8%
2006: 2.8%
2007F: 2.4%
United States
2005: 3.2%
2006: 3.3%
2007F: 2.1-2.2%
Japan
2005: 2.6%
2006: 2.2%
2007F: 1.7%
China
2005: 9.9%
2006: 10.7%
2007F: 8.0%
India
2005: 8.4%
2006: 9.0%
2007F: 8.8%
Latin America
2005: 4.3%
2006: 5.0%
2007F: 4.2%
Global Growth
2005: 3.5%
2006: 3.9%
2007F: 3.2%
GCC
2005: 7.4%
2006: 7.5%
2007F: 6.1%
Malaysia
2005: 5.2%
2006: 5.9%
2007F: 6.0%
Africa
2005: 5.4%
2006: 5.4%
2007F: 5.9%
South East Asia
2005: 5.8%
2006: 6.3%
2007F: 6.2%
Australia
2005: 2.5%
2006: 2.7%
2007F: 3.0%
3
Source: Central Banks, Bloomberg, KFH
Intermediation Remains Key
¾ Vast liquidity especially in Asia. Asia (including Japan) has amassed large amounts of
international reserves approx. USD3 trillion as at 23 March 07
¾ Lessons from the 1997/98 financial crisis demonstrated the need for a more developed
intermediation channel for long-term project financing (prior to the crisis, project
owners fund long-term assets with short-term liabilities)
¾ Capital market has become an important intermediation channel in emerging
economies in the past decade
¾ Capital market channels funds (savings & reserves) into productive economic sectors/
infrastructure projects crucial for the development of emerging economies
¾ Continuous development of intermediation channels have seen the rising importance
of equities, bonds and structured products as alternative sources of financing (besides
the traditional bank loans)
¾ Development of new capital market products – REITs, exchangeable/ convertible
bonds, structured products, Islamic products etc
4
Asia’s Growth Story & 2007 Economics
Asian Countries GDP Growth Trend
Regional Growth Comparison
12.0
2006
15.0
2007F
8.0
5.0
% y-o-y
10.0
% y-o-y
10.0
6.0
4.0
-5.0
2.0
97
98
99
00
01
02
03
04
05
06
07F
-10.0
0.0
Chn
India
Indon
Msia
Thai
Viet
Spore
35
Q1
30
Q2
-15.0
Phil
Regional Export Growth Comparison, 2006
Q3
Q4
India
Indonesia
Malaysia
Thailand
Thai
Jap
Growth drivers: Positive private consumption, sustained
export growth (encouraged by intra-regional trades) &
higher public spending on infrastructure projects (Malaysia/
Indonesia)
¾
Indonesia’s GDP of 6.0% in 07, propelled by higher infra
spending, FDI inflows & continuous reforms
¾
Vietnam’s GDP of 8.5% in 07, underpinned by healthy
exports, FDI inflows & economic reforms
¾
Malaysia’s GDP to trend higher at 6.0%, premised on
resilient domestic aggregate demand
5
0
China
Msia
Taiw
¾
10
5
Spore
S Kor
Asia’s GDP growth forecast of 7.0% y-o-y in 2007, driven
by positive growth in China & SEA
20
15
Chn
Phil
¾
25
% y-o-y
0.0
Source: Central Banks, KFH
Asia’s Strengthening Private Consumption
Private Consumption & Per Capita Income Comparison 2006
80
Private consumption % of GDP
US
70
Philippines
Indonesia
UK
Taiwan
India
60
Hong Kong
Germany
Malaysia
South Korea
Thailand
50
Japan
China
Singapore
40
30
0
5
10
15
20
25
30
Per capita income (USD’000)
35
40
45
¾
Chart shows the path that countries go through in becoming developed economies
¾
At the initial stage of economic development when income level is low, consumers generally spend their income on
basic needs & a higher proportion would be retained as savings/ investments
¾
Once the threshold is reached, the share of Private Consumption will rise in tandem with the increase in income level,
channelled into high quality and value-added goods & services
6
Source: Central Banks, KFH
Asia Accumulates Large Cushion Of Reserves
Regional International Reserves Comparison,
as at 23 March 07
Asian Countries Current Account Position,
% of GDP
1200.0
30
2005
2006
2007F
1000.0
800.0
20
USD mln
% of GDP
25
1066.0
15
600.0
10
400.0
5
200.0
0
0.0
187.1
Spore
Msia
HK
Chn
Taiw
Phil
S Kor
Indon
Asian Countries International Reserves Trend
1200
Chn
2004
2005
Taiw an
Malaysia
2006
2007YTD
S Korea
Thailand
USD bln
Thai
Indon
8.0
Vietnam
Asia relies more on exports to supply the demand for
domestic production
¾
Asian countries, in particular China, maintain an
undervalued exchange rate against the USD to stimulate
exports. The result is positive current account balance as %
of GDP
¾
Heightened risk aversion leading to accumulation of large
international reserves as cushion to external shocks (if any)
200
2003
Japan
Singapore
45.7
¾
400
1997
2001
China
Hong Kong
Msia
69.2
Asia accumulates huge international reserves post crisis,
approx. USD3.0 trillion (incl. Japan) as at 23 March 07
600
0
Spore
81.7
¾
1000
800
India
139.15
7
Source: Bloomberg, KFH
Higher Savings Rate In Asia (Ex Japan) vs. Globally
Global Savings Trends (% of GDP)
Average
1990-99
Average
2000-02
2005
2006
% Increase:
1990-2006
World saving
22.9
23.4
22.7
22.1
-0.8
China
40.3
39.9
45.5
48.0
9.6
Emerging Asia
31.2
30.9
38.3
40.2
9.0
Japan
31.6
27.8
26.9
27.6
-4.0
US
16.3
16.2
12.9
13.7
-2.6
EU
21.5
21.3
19.8
20.1
-1.4
¾
Emerging Asia saving rate is on a rising trend, stood at 40.2% of GDP in 2006, up from an average of 31.2% for 19901999 and higher than world saving rate average of 22.1%
¾
Current account surpluses and long-term real interest rates (i.e. nominal interest rate – inflation) in the past few
years were high to encourage savings
¾
High savings will ensure sustained private consumption moving forward amidst slowing US economy
8
Source: IMF, Bloomberg, BIS Annual Report, KFH
Asia’s Sovereign Ratings
Sovereign Ratings Comparison
Ratings Grade
Aaa/AAA
Investment Grade
Aa1/AA+
Moody's
Aa2/AA
S&P
Fitch
Aa3/AAA1/A+
A2/A
A3/ABaa1/BBB+
Baa2/BBB
Baa3/BBB-
High Yield
Ba1/BB+
Ba2/BB
Ba3/BBB1/B+
B2/B
Developed Market
¾
Pakistan
Papuan
New
Guinea
Indonesia
Philippines
Vietnam
India
Thailand
Malaysia
China
Hong Kong
Taiwan
Japan
New
Zealand
Australia
Singapore
B3/B-
Emerging Market
Asian Sovereign ratings have stayed above investment-grade levels (except for Vietnam, Philippines & Indonesia),
underpinned by sound macroeconomic fundamentals, prudent fiscal management and improving external positions
9
Source: Bloomberg, KFH
Growing Size of Regional Bond Markets
Growth of Asia’s Bond Markets: Total Bonds Outstanding As
% of GDP (1997-2006)
Bonds Outstanding as a % of GDP
120
1997
2004
2005
2006
100
80
60
40
20
0
China
Indonesia
Korea
Malaysia
Philippines
Thailand
Hong Kong
Singapore
¾
In 2006, East Asia’s combined local currency bonds outstanding increased further to exceed USD1.5 trillion
¾
Malaysia has the highest total bonds outstanding to GDP ratio at 96.9%, followed by South Korea at 88.2%, Singapore
at 49.3% and Thailand at 50.8%
10
Source: Asian Development Bank, KFH
Size of Asian Bond Markets
Size of Asian Debt Securities Market
Relative to GDP (%), as at June 06
Size of Asian Debt Securities Market,
USD bln & % of GDP, as at June 06
250
Size relative to
GDP (%)
Public
Sector
% of GDP
150
100
50
0
Jap Msia Kor Spore Thai HK Chn Phil Indon Viet
Public sector Private sector
¾
Total
USD billion
200
¾
Private
Sector
Japan
206.7
6,968.9
2,185.3
9,154.2
Malaysia
96.9
55.5
80.3
135.8
Korea
88.2
260.6
470.5
731.1
Singapore
73.9
52.6
38.0
90.6
Thailand
50.8
44.1
51.5
95.6
Hong Kong
49.3
16.6
73.8
90.
China
43.5
716.4
332.5
1,048.9
Philippines
37.7
39.9
0.3
40.2
Indonesia
22.0
61.7
7.4
69.1
Vietnam
7.4
3.7
0.2
3.9
Malaysia possesses the second largest debt market in the Asian region after Japan, at 96.9% of the country’s total GDP
value
The Malaysian private debt securities market (PDS) (as a % of GDP) is also the largest compared to other regional
economies
11
Source: BNM, ADB, KFH
CONTENT
Asia’s Outlook & Perspectives
Intermediation Channel For The Capital Market
Malaysian Bond Market
12
Intermediation Channels For Project Financing
Economic sectors/ projects
Banking sector
Equity market
Bond market
(conventional &
Sukuk)
To move towards capital market for project financing
¾
Importance of
intermediation in
channeling funds into
productive projects/
sectors for economic
development
¾
Continuous development of
intermediation leads to
new capital market
products, providing more
funding options to project
owners
¾
The result: efficient
allocation of resources
Intermediation Channels
Gross National
Savings
36.3% of GNP
Huge export
earnings &
reserves
RM307.1bln
Funds with
Insurance
Companies,
Banks & Pension
Funds
Sources of funds
13
Source: BNM/DOS, KFH
Challenges Faced By Capital Markets As An Intermediary
9
Decline in international
competitiveness
9
Slow recovery in capital
market activity (Malaysia,
Indonesia, Thailand)
Lingering effects
of 1997/98
financial crisis
9
9
9
Funding needs of
issuers
Investment &
intermediation needs
of consumers
Employment &
knowledge
development needs
Market
Intermediation
Meeting the needs
of a growing economy
Heightened global
competition for
business & investment
9
Growing pool of
investable funds
9
Competition among
market institutions &
intermediaries
9
Usage of technology &
innovation
9
Development of specific
value-added areas
9
Liberalisation
14
Source: SC, KFH
Why The Capital Market As An Intermediary?
1. Enhancing value
proposition for
issuers
Funds raised in capital
markets must be efficient
& competitive in order to
be able to respond to
rising global competition
Capital markets provide a
diverse range of products that
cater to investors’
preferences & needs
2. Improving the role of
capital markets to meet
investors needs
Capital markets need to
respond to changing needs &
demands of customers,
technology advancements &
increasing integration
5. Ensure a stronger &
more facilitative
regulatory regime
4. Promote effective
investment mgmt &
conducive environment for
investors
Implementation of a marketbased regulation across
capital mkts, consistency for
players, enhanced systemic
risk mgmt, strengthening
enforcement & regulatory
parity
Promote efficiency, cost
effectiveness & diversify in
product range
3. Develop internationally
competitive market
institutions &
intermediaries
15
Source: SC, KFH
Capital Market Alleviates Funding Burden From Banking Sector
Malaysia: Private Sector Financing Via Banking Sector & Capital Markets (1997-2006)
100
RM bln
80
60
40
20
0
1997
1998
1999
2000
Bank loans
Malaysia: Private Sector Financing Trend (2006)
2001
2002
Equity
Equity
3%
2004
2005
2006
PDS
¾
Capital market has become an important channel of
intermediating huge savings/ reserves into productive
projects
¾
Capital market especially the bond market has become an
important source of project funding in recent years
¾
Between 2000-2003, the bond market has surpassed banking
loans as preferred choice of funding
¾
In 2006, PDS financing stood at 42% of total financing needs
of the private sector
PDS
42%
Bank loans
55%
2003
16
Source: BNM/DOS, KFH
The Role Of The Regulator
Review legal &
regulatory framework
Change of attitude
This will allow capital market development whereby providing the basis for
sound institutional practices
Changes that rationalise the relationship of various economic sectors and the
allocation of limited resources will encourage the development of capital
markets
Privatise large public
sector holdings
Privatisation will release new assets for market dealings and lead to an increase
in the financing of activities through the capital market
Develop
complementary mkts
Development of complementary markets such as the futures market should be
encouraged to provide alternatives sources of investment
Establish a linkage
with major markets
E.g. For the listing and eventual trading of shares of major companies and highrated international bond issues
New developments
within markets
Changes offer new challenges and exert new pressures on the institutional
structure of the financial system
Monetary policy
Liberalisation
Monetary policy plays a major role in stabilising capital markets
Encourage competition & speed product development
17
Source: SC, BNM, KFH
CONTENT
Asia’s Outlook & Perspectives
Intermediation Channel For The Capital Market
Malaysian Bond Market
18
Debt Market Matures To Meet Issuers Demand
BEFORE INTRODUCTION OF
DEBT MARKET
THE SCENE
9 Loans financing
provided by banking
sector
WITH THE EXISTENCE OF ACTIVE DEBT MARKET
THE SCENE
WHAT’S ON OFFER?
9 Increase in sophistication to
9 More sources of
financing directly from
the debt market
deliver the financing needs
of infrastructure projects
9 Guarantee of access to
larger investor base e.g.
Islamic investors
THE RESULT
9 Limited supply of
9 Decrease dependence
9 Concentration of
9 Deepening and
financing sources
financing in banks
9 Potential lower pricing to
THE RESULT
on
banks for financing
broadening of bond
market
9 Emergence of structured
products such as ABS to
cater for sophisticated
financing requirements
long-term issuers via the
wider investor base, thus
enhancing competitiveness
of companies
9 Provide an avenue for more
efficient and effective
allocation of savings into
investments, thus enhancing
value and maximizing
returns to investors
19
Source: KFH
Malaysia: Growing Size of the Bond Market
Outstanding Public vs. Private Sector Bonds (1996-2006)
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Outstanding amount (RM bln)
119
134
157
203
245
278
278
328
363
398
416
Public bonds (RM bln)
72
71
82
90
103
117
125
149
175
191
201
Private bonds (RM bln)
47
63
75
113
142
161
153
179
188
207
215
Total bonds outstanding (% of GDP)
46
47
56
67
71
83
77
83
81
80
96.9
Share of Public & Private Sector Bonds (2006)
¾
Rapid growth for the bond market post 1997/98
financial crisis given the recognition that bonds
account for a more stable source of long-term
financing
¾
Private sector bonds exceed public sector bonds since
1999
¾
Share of private sector bonds outstanding increased
from 39.5% in 1996 to 57.3% in 2006
¾
High savings rate: Gross National Saving at RM221bln
or 36.3% of GNP in 2006
Public Sector 39.6%
Private Sector 57.3%
20
Source: BNM/FAST, KFH
Public Sector Bonds for Benchmarking
Public Sector Bond Issuance (1995-2006)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Malaysia Government Securities
2.0
6.0
3.0
15.0
10.0
16.4
23.1
16.3
41.3
43.2
31.5
36.1
Government Investment Issues
0.8
-
-
-
2.0
2.0
1.8
2.7
1.7
3.4
4.0
9.5
Khazanah Bonds
-
-
0.8
2.7
2.6
1.6
1.6
-
3.5
1.0
0.8
2.0
Malaysia Saving Bonds
-
-
-
-
0.4
-
-
0.5
-
1.9
1.6
-
Total Gross Issuance
2.8
6.0
3.8
17.7
15.0
20.0
26.5
19.5
46.3
49.5
34.7
38.3
Total Net Issuance
-0.4
1.3
-1.4
9.8
6.3
13.7
15.2
8.6
24.7
26.7
15.8
20.9
250
40
39
38
37
36
35
34
33
32
RM bln
200
150
100
50
0
2001
2002
2003
2004
Outstanding value RMbln
2005
2006
% of GDP (RHS)
%
Public Sector Bonds Outstanding (2001-2006)
¾
Budget surplus years (1993-97) reduced MGS issuances
¾
Rapid rise in public sector bond issues since 1998 has
not crowded-out private debt issues
¾
Regular MGS issues to attain benchmark yield curves for
capital market development
¾
2007 MGS issuance is expected higher at RM46blnRM48bln (vs. RM36.1bln in 2006) given the need of 9MP
development spending in 2007
21
Source: BNM/DOS/FAST, KFH
Rapid Growth of Private Debt Securities
PDS vs. Bank Loans & Equity (1997-2006)
Total Financing of the Economy (1997-2006)
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Bank Loans
88
5
1
24
16
20
22
40
40
43
Gross PDS
15
11
23
22
31
27
43
28
36
32
Equity
18
2
6
6
6
13
8
6
6
2
Total
124
13
22
50
40
35
72
75
82
77
Size of Corporate Bonds vs. Corporate
Loans Market (1998-2006)
200
¾
Corporate bond market has been a significant source
of financing since 1998
¾
PDS growth has been higher than loan growth since
1998
¾
Share of PDS in debt financing increased to 41.6% in
2006
¾
Corporate bonds represent an attractive asset class
for pension funds – excess liquidity and low interest
rate environment
¾
PDS are rated and therefore encourage larger investor
base
22
RM bln
150
100
50
0
1998 1999 2000 2001 2002 2003 2004 2005 2006
Corporate bonds
Corporate loans
Source: BNM/DOS, KFH
Private Debt Securities: A Report Card
250
60
58
56
54
52
50
48
46
44
42
40
200
150
100
50
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07F
2001
2002
2003
2004
Outstanding value RMbln
Rising Demand for Longer Maturities PDS (2006)
10-15yrs
20.6%
15-20yrs
0.2%
>20yrs
5.0%
1-5yrs
40.7%
2006
% of GDP (RHS)
Diversify of Issuers Profile (2006)
Gaming/Ent
7.8%
IT
0.0%
ABS
Mining
0.1%
Trading/services
2.5%
Municipal
0.6%
6.7%
Supra
3.9%
Ind'l products
2.2%
5-10yrs
33.5%
2005
%
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
PDS Outstanding (2001-2006)
RM bln
RM bln
Increasing Gross Issuance of PDS (1990-2007F)
Healthcare
1.0%
Manufacturing
0.8%
GLC
18.3%
Property
3.7%
Oil & gas
2.1%
Construction
2.1%
Financial
20.5%
Infra & Utilities
27.6%
23
Source: BNM/FAST, RAM, MARC, KFH
Intermediation In The Islamic Capital Market
Global Deployment of Islamic Products
Across Middle East,
South East Asia and Africa
9
9
9
9
9
9
There are more 267 Islamic financial institutions (FIs) worldwide with capitalisation in excess of USD13 billion.
This includes banks, mutual funds, mortgage companies & Takaful
Shariah-compliant financial products estimated to exceed USD250 billion with annual growth rate of 23.5% over
the past 5 years
There is approx. USD1.5 trillion of GCC funds held in investment assets worldwide (Treasuries/corporate
bonds/equities/funds etc). Of this USD1.5 trillion, USD250 billion constitutes of High Net Worth Individual
The potential is huge. By 2020, there will be 2.5 billion of Muslim population worldwide from the current 1.5
billion level
Islamic banks are expected to manage 40%-50% of total savings of Muslim population in 8 to 10 years. Therefore,
potential for Islamic financial services is estimated at USD4 trillion by 2020
It is crucial this huge amount of funds are channeled towards productive use –into GCC infrastructure/economic
sectors and other emerging economies
24
Source: IFIS, KFH
Malaysia’s Islamic Bond Market
Corporate Bond Issuance Trend (1990-2007F)
Corporate Bonds Issued by Instrument Type, 2006
45000
40000
Conventional
PDS
42%
30000
25000
20000
15000
10000
Islamic
Conventional
Total
Composition of PDS Issued, as at Dec 06
Islamic CP
3%
ƒ
The bond market continued to be an important avenue for
raising funds. Total government & corporate bonds
outstanding stood at RM377.2bln as at end-2006
ƒ
Islamic securities remain the preferred form of debt
financing and accounted 58% of total PDS issuance in 2006
ƒ
Enabling environment e.g. implementation of tax incentives
for Islamic products as well as measures taken since 2004
to develop a more innovative and sophisticated Islamic
Capital Market resulted in higher issuance of Islamic
securities in 2006
25
Islamic ABS
2%
Islamic ABS-MTN
0%
PDS
33%
Islamic MTN
14%
Islamic PDS
34%
Islamic PDS
58%
2007F
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
5000
0
1990
RM mln
35000
ABS-MTN
0%
ABS
6%
CP
2%
MTN
6%
Source: BNM/FAST/BIDS, RAM, MARC, KFH
Deepening Islamic Debt Market
Total Value of Islamic Corporate Bonds Issued &
Rated by Sector, as at Dec 06
Financial services Invst holding ABS
1.9%
1.9%
3.3%
Plantation
Mining
1.8%
3.1%
Manufacturing
0.2%
GLC
2.8%
Islamic Corporate Bonds Rated & Issued by Instrument
Type, as at Dec 06
Bai Bi Al-Taqsit Qard Hassan
0.7%
1.3%
Bai Al-Dayn
Ijarah 3.9%
Consumer products
0.7%
Industrial
7.0%
Bai Inah
0.7%
Musyarakah
2.7%
Murabahah
26.1%
1.9%
Istisna
9.7%
Construction
2.5%
Transportation
1.3%
Supra
0.1%
Healthcare
0.2%
Mudharabah
0.1%
Trading/Services
3.6%
Property/Real
Estate
18.5%
Infra/utilities
51.1%
Bai Bithaman Ajil
52.9%
¾
There are 380 issues of rated and issued Islamic corporate bonds worth RM165.2bln as at Dec 06
¾
In terms of total value of Islamic PDS issued, Infrastructure & Utilities dominated at 51.1%, followed by Property/
Real Estate and Industrial Products at 18.5% and 7.0% respectively given the large scale nature of these projects
¾
Preferred Islamic structures are Bai Bithaman Ajil (56%) and Murabahah (29%)
¾
Issers are venturing into other Islamic structures such as Istisna, Ijarah and Bai Al-Dayn
¾
2007 Outlook: Islamic bonds will continue to dominate the primary market at 70%, underpinned by 9MP
Infra/Utilities project financing, Mining/ Oil & Gas, Construction/Infra-related Manufacturing, Plantation (esp. Palm
oil)
26
Source: BNM/DOS/FAST, RAM, MARC, KFH
Islamic Bonds For Infrastructure Project Financing
¾ Large companies with regular income flows such as utility companies (i.e. power,
water, toll roads, oil & gas) & municipals/ government-linked bodies are the
biggest potential issuers of Sukuk
¾ These infrastructure projects may be overly leveraged however it is possible that
part of the debt may be converted into a Sukuk that are serviced by the utility
nature of the underlying asset, such as reliable income streams based on long-term
contracts with governments
¾ Malaysia has the largest Sukuk market in the world, accounting for 84% of global
Sukuk issuances. As at Mar 07, total power bonds issued & rated in Malaysia
amounted to RM27.2bln (USD7.8bln) as at Mar 07, of which Islamic power bonds
dominated at 88% of total power bond issuances. Istisna is the preferred
instrument type accounted for 52% of total power bond issuances
¾ Among notable Malaysian power names include Jimah Energy Ventures (RM4.85bln),
Tanjung Bin Power (RM5.57bln), Segari Energy Ventures (RM930mln) and Mukah
Power Generation (RM950mln)
¾ Pakistan Water & Power Development Authority (WAPDA) has issued a 7-year,
USD134mln Sukuk to partially finance its Mangla Dam project
27
Source: Bloomberg, IFIS, RAM/MARC, KFH
Malaysia Sees Higher Investment Spending Moving Forward
Development Expenditure Allocation Under
Malaysia Plans
1600
1400
1000
RM bln
RM bln
1200
800
600
400
200
0
1990-1999
200
180
160
140
120
100
80
60
40
20
0
40
35
30
25
20
15
10
5
0
1MP
2001-2010
2MP
3MP
4MP
Total development expenditure
% allocation to infrastructure (RHS)
Private Investment by Sector Under 9MP
(RM76.2bln)
Mining
13%
Construction
14%
Agriculture
10%
Manufacturing
33%
Services
30%
%
Investment Spending Trends (1990-2010F)
5MP
6MP
7MP
8MP
9MP
Infrastructure development allocation
¾
Malaysia’s total investment spending is expected to double
over the next 10 years
¾
Under 9MP, total development expenditure allocation was
17.6% higher at RM200bln vs. RM170bln under 8MP
¾
Total private investment is expected to increase to
RM76.2bln under 9MP from 8MP’s RM43.8bln
¾
Priority spending – Infrastructure (roads/ highways, new or
upgrading of rural roads, power/ rural electrification,
water), Agriculture, Manufacturing & Services
28
Source: Malaysia Plans, KFH
Potential Islamic Financing Instruments
Size of market as % of total assets
Islamic wealth
management
Private equity
Equity
Sukuk
Leasing
Trade
finance
Commodity
Murabaha
trades
The global Islamic
landscape by asset
value depicts potential
growth for Islamic
structured products to
cater for huge demand
from Asia & the Middle
East
Property
Islamic structured products
Industry demand
29
Source: Failaka International, KFH
Malaysia’s Position In Global Sukuk Market
Global Local Currency & Dollar Sukuks Issued
by Country (as at 28th March 07)
30000
30000
25000
25000
20000
20000
15000
15000
10000
10000
5000
5000
0
Saudi
2.2%
Murabaha
2.6%
Istisna
3.8%
Pakistan
1.1%
US
0.3%
Malaysia
68.4%
¾
Global Sukuk Issuance Trend - 2004 : US$7.2 billion, 2005 :
US$12.1 billion, 2006 US$26.8bil, 2007F: USD35blnUSD40bln
¾
2006 Sukuk issuances were dominated by Malaysia 55%, the
UAE 31.5%, Kuwait 3.7%, Saudi Arabia 3.0% and Bahrain
2.9%
¾
In terms of local currency & dollar Sukuks issued &
outstanding, Malaysia has the largest Sukuk market in the
world, accounted for 68.4% of global Sukuk as at 28 Mar 07
¾
Global Sukuk outstanding is expected to reach USD150bln
by 2010 from current USD47bln
30
Mudharabah
0.4%
Ijarah
41.5%
Musharakah
51.7%
Qatar
1.3%
2005
2006
Total Sukuk (RHS)
Composition Structure of Global Sukuk by Value (2005)
Bahrain
3.3%
Kuw ait
1.2%
0
2000
2001
2002
2003
2004
Corporate Sukuk
Sovereign Sukuk
EU
0.2%
UAE
22.0%
USDmln
USD mln
Global Sukuk Issuance Trend (2000-2006)
Source: Bloomberg, IFIS, Central Banks, KFH
Enhancing The Intermediation Process In The Islamic Capital
Market
Mobilization of
Islamic Assets
Mobilize dormant Islamic assets held by Islamic Institutions
through securitisation to enhance liquidity and provide new
sources of income
Tax and Legal
Framework
Facilitate tax and legal framework to promote the development
of Islamic capital market
Market & Product
Development
To introduce innovative,competitive and wider range of Islamic
securities
International
Practice
Promote international harmonization and standard setting to
enhance cross-border linkages and accelerate the country as
investment destination
Awareness &
Education
Enhance awareness at domestic and international level.
Increase pool of Islamic capital market expertise through
training and education
Foreign
Participation
Encourage foreign participation in domestic market.
Supranational and multinational corporations are allowed to
issue local currency-denominated Islamic debt/Sukuk
31
Source: KFH
Conclusion
Rob
Meeting various needs of
market players (assetliability matching, riskreward, risk management
capability etc)
le
Enhanced secondary
market
Enable market making
activities
Tra
nsp
are
nt
Ma
rk
et
Capital Market
As Intermediation
p
nc i
Pri ip
nt
h
icie ers
Eff Deal
Promoting market liquidity
and providing two-way
quotations esp. for trading of
Islamic papers
Large Number
of Players
f
eo
a n g ts
n
eR
Wid trume
Ins
Providing clear operating
environment, dual banking
system
ust
Fra Regu
me
l
wo atory
rk
Providing breadth & depth of capital market
products and participants
Improving efficiency and
attracting more participants
into the primary and
secondary markets
32
Source: KFH
THANK YOU
33