Bursa Malaysia: Juggling the wellbeing of the market, economy and lives

Name: Datuk Muhamad Umar Swift

Title: CEO, Bursa Malaysia

The pandemic has brought many changes to the way we work. In your view, what changes are here to stay that will shape the workplace of the future? 

Hybrid work arrangements such as remote work or work from home will remain even after the restrictions of COVID-19 are fully lifted. Employers and employees now recognise the advantages and opportunities that hybrid work arrangements provide, and many organisations have begun to embrace this hybrid workplace style.

Implementing remote work, or work from home, minimises travel hours and the stress of dealing with traffic congestion. Additionally, reduced or eliminated daily commute result in fewer cars on the road, lowering air pollution, greenhouse gas emissions and carbon footprint. 

As hybrid workstyle arrangements become more common, companies and organisations will need to prepare for the workplace of the future. Some items to consider include: Who has the ability to work from home? Is there an ideal timeframe for remote work? What circumstances would require employees to physically enter the office? But most importantly, the future workplace necessitates significant investment in technology and innovation for the convenience of both employees and employers, and for businesses to remain globally competitive in this accelerated digital age. This, in essence, is the workplace of the future ― anytime, anywhere. 

What do you see as the biggest challenges and opportunities for your exchange in the year ahead?  

At the recent tabling of the Malaysian Budget 2022, a number of adjustments were made that created new challenges for Bursa Malaysia. They are the increase of the stamp duty rate to 0.15% from 0.10%, the removal of stamp duty limit of MYR200 per related contract note, as well as the exemption of sales tax on brokerage activities for trading of listed shares. With this, Bursa Malaysia will be one of the most expensive markets the ASEAN region.

Although changes to the above transaction costs are not yet in effect, trading activity has declined in the last few weeks as investors re-evaluate their investment options and prepare themselves before the measures take effect in January 2022. Overall, the higher stamp duty is expected to affect the trading volume and stock velocity, although the extent of it is hard to quantify at this juncture. 

In addition, the newly announced Prosperity Tax would also affect the valuation of PLCs, and subsequently trading in their stocks.  

Looking ahead, investors’ interest in our market is expected to depend more on the pace of the recovery of corporate earnings. With the gradual re-opening of the economy, and supported by the fullyvaccinated adult population of more than 95%, we expect that Malaysian corporates are poised to be on the right track towards recovery. 

Being a country with diverse economic activities and positive growth prospects, there will always be opportunities. The shift towards ethical, or value-based, investing augurs well for Bursa Malaysia. The convergence of sustainability, responsible investing and Shariah investing will strengthen our competitive edge and make our offerings highly relevant to investors around the world.

Several large IPOs that have been deferred are expected to make a return going forward, which would encourage both retail and institutional investors. There is also ample room for growth in the derivatives market. Our leadership in the palm oil suite of capital market offerings is, amongst others, a potential strong growth catalyst.

We will step up efforts to engage investors to highlight the resilience, diversity, and quality of our companies and other product offerings, and our recently announced PLC Transformation Programme will provide further guidance for our PLCs to improve their corporate performance over the medium term.

Ongoing efforts to digitalise our services, liberalise the regulatory framework and widen our products and services have allowed us to capitalise on new opportunities and stimulate long-term interest in our markets. We will continue to work closely with regulators to ensure market efficiency, as well as improve market accessibility and liquidity to support participants during these challenging times.

What was your most memorable moment this year as a leader?

Despite the ongoing crisis, I was encouraged to see Malaysia well on its way to recovery from the pandemic, thanks to high immunisation rate among the country's adult population and the reopening of economic sectors. The restoration of economic activity and the relaxation of restrictions were warmly welcomed by the majority of Malaysians. Many companies, particularly micro, small, and medium enterprises, as well as the self-employed, have been battling to survive under the pandemic's prolonged impact and enforced lockdown measures.

Malaysia will likely experience a strong rebound in the fourth quarter, given infection rates have decreased dramatically in recent weeks due to the ramped-up vaccination programme. As we recover from the pandemic, we must focus on improving economic participation in all aspects of society, particularly for populations that face hurdles to resources, services, and capital. Malaysia will only truly become a resilient society with inclusive economic growth if all parties work collectively together as one nation.

What are three key industry themes you will be focused on in 2022?

While the Exchange’s FBMKLCI contracted by 5.8% in 1H2021, the broader market continues to be resilient. Several laggard sectors in 2020 are starting to display signs of recovery, as indicated in the table below:

In 2022, the market will be driven by sectors related to the recovery theme. Technology, Transportation & Logistics, and Industrial Products & Services are just a few examples. As more money flows into strong ESG companies, which correlate with well-managed and high-performing companies, ESG-related counters could also be a potential theme.

Bursa Malaysia’s market forward PE of 15.7x is currently one of the lowest in the region compared to our neighbouring peers, which range between 18.0x to 19.7x. With opportunities opening up, this would make the Malaysian capital market an even more appealing recovery play in the coming months.

Moreover, Malaysia is blessed with commodities such as crude palm oil and petroleum, which are likely to benefit from the commodity price rallythat has coincided with recent foreign inflows. 

Tell us one thing that will change in 2022 and one thing that won’t?

Among the global investing community, there are increasing expectations and a push for corporates to embed sustainability into their business strategies and operations. We have seen significant momentum building up throughout 2021, with exchanges globally broadening their offering of sustainability-related products and services, including launching new sustainable/green bonds, ESG and climate indices, ESG data products, and the establishment of carbon trading platforms. These initiatives are likely to ramp up in 2022 and beyond, as aspects relating to our planet and people (e.g. climate change, fair labour practices, gender diversity, etc.) become more pivotal in corporate and investment decision making.

I anticipate there will be greater regulatory clarity, which should pave the way for growth in sustainable finance practices. For example, the recently published ASEAN Taxonomy for Sustainable Finance[1] introduces a common language across ASEAN for financing sustainable economic activities. Further, the agreement reached at the conclusion of the COP26 summit to create standards to govern international carbon markets should bolster international carbon trading going forward.

Unfortunately, what won’t change will be continued market uncertainty and volatility due to the Covid-19 global pandemic. The indeterminate pathway of this pandemic is anticipated to linger in 2022 as there is still uneven access to vaccines globally; less than 6% of people in low-income countries have received at least one dose of any vaccine. There are already reports of the latest Omicron variant being more transmissible and deadlier than the earlier Covid-19 variants, prompting countries to rethink plans to reopen borders and triggering market jitters.

The emergence of these more transmissible and deadlier Covid-19 variants could lead to recurrent waves of infections, once again impacting lives and livelihoods. This, in turn, would again precipitate pullbacks of economic activity and induce pockets of volatility in the global financial markets ― such as we have all observed over the past two years.