THE continuous liberalisation of foreign exchange administration rules by Bank Negara has made foreign investment in Malaysian stocks much easier, thereby raising overall investor interest in the local capital market.
The central bank has this week received many calls from overseas enquiring about the new overnight overdraft limit that is aimed at facilitating settlement of share purchases on the MSEB.
Foreign investors were particularly interested in finding out whether the new credit limit was meant for financing purchase of shares in the local market, reflecting growing foreign interest in Malaysia.
Bank Negara had announced last Friday that effective today, onshore banks would be allowed to extend overnight overdraft facilities of up to RM200mil to a non-resident stockbroker or custodian bank to facilitate settlement of share purchases on the MSEB in the event of delays in the receipt of funds owing to time difference or unforeseen technical problem. Such delays had in the past created a bottleneck in the trade settlement process.
Previously, the maximum amount permitted for such overnight credit facilities was RM10mil.
The aggregate limit for intra-day credit, however, remains at RM200mil.
Also effective today, a banking institution is allowed to lend up to RM10mil to a non-resident (both corporate and individual) for any purpose in Malaysia other than financing and refinancing the purchase or construction of immovable properties.
Banking institutions allowed to extend such a credit facility are commercial banks, Islamic banks, merchant banks and finance companies.
The RM10mil ringgit-denominated funds borrowed by a non-resident can be used for investment in the MSEB. Industry players see the fine-tuning of the forex administration rules as complementing the development of the domestic capital market to international standards.
The progressive liberalisation in the past few years of these rules, some of which have been in place since the late 1930s, underlines the government's commitment to positioning the local capital market to leverage on the globalisation trend.
The latest example of this is its decision to allow unit trust management companies to invest abroad the full amount of net asset value (NAV) attributed to non-residents and up to 10% of the NAV of each fund attributed to residents.
Many local fund managers are clearly excited about being able to invest abroad, as it is something they have been longing for.
Other than providing an opportunity to seek better investment returns from overseas, industry observers said the new rule would also encourage local unit trust companies to launch products that would attract foreign subscribers. This, they said, was another means of generating inflows of foreign funds to the country.