Execution is key to CMP

THE long-awaited Capital Market Masterplan 2026 to 2030 (CMP) was finally released with key details as to how the regulators see the Malaysian capital market developing over the next five years.

Governance took centre stage in the new CMP as Malaysia positions itself as a regional leader in responsible investment, focusing on the environment, social, and governance framework, as well as the country’s leading role in promoting syariah-compliant and socially responsible investments.

Focusing on four strategic outcomes, CMP calls for a vibrant capital market that will drive prosperity and inclusivity, as well as promote sustainability goals.

CMP has outlined an ambitious plan, with the capital market expected to hit between RM5.8 trillion and RM6.3 trillion by 2030, from just RM4.3 trillion at the end-2025.

Having recorded a compounded annual growth rate (CAGR) of 5.1% between 2021 and 2025, led by a strong 6.6% growth in the value of total fixed income securities outstanding, strategies outlined in the new CMP are expected to see the capital market growing at a CAGR of between 6.1% and 7.9% over the next five years, which is indeed a tall order.

Foundation of the future

Based on input from the industry and various stakeholders, CMP can be said to be a holistic blueprint that is razor-focused on capitalising on Malaysia’s strengths in driving Islamic capital market, sustainability-related investments, and modern investment themes or tools.

The CMP recognises global trends, evolving demographic changes, and economic transformation.

The key in the CMP is how the capital market can be a critical enabler that will transform Malaysia to be more prosperous in the identifiable high-growth areas such as advanced manufacturing, green technology, digital economy, and others.

In this instance, the critical success factor will be the wider pool of investors, which will make the capital market more inclusive by providing tools and opportunities for the untapped retail market participants.

Retail interest

Based on the current assessment, the retail market participation is at just 25% and is not reflective of an inclusive society, where the level of market participation should be higher.

According to the Securities Commission (SC), 60% of non investors are below the age of 40, and this reflects the lack of financial market awareness.

Lack of trust has been cited as the main reason, as investors fear being scammed.

Indeed, there is a greater need to raise the level of awareness and education when it comes to financial literacy.

Of course, as highlighted in the CMP, the current generation has different life objectives when it comes to investments, as well as the manner and type of investments they are focusing on.

The lack of market participation and trust in the capital market is also evident by the large amount of retail deposits in the banking system, with modest returns in the form of low-yielding assets.

Under the CMP, the SC is looking to reshape how individuals are engaged, incentivised, and supported throughout their financial journey.

This requires early engagement with individuals in their working lives to drive the level of participation, followed by efforts to improve long-term retention with a view to helping more Malaysians achieve financial resilience and retirement sufficiency.

While these efforts are laudable, the key is not only engaging individuals at their respective workplaces but also making financial literacy a part of primary and secondary education, similar to how some subjects are taught in schools.

Lifting values

One of the key incentives in CMP is the MY Value Up programme that could help raise listed companies’ profiles in terms of key financial matrices, which, among others, include total shareholder returns and return on invested capital.

The CMP also calls for the publishing of annual key performance indicator (KPI) scores.

The objective here is to address mispricing for undervalued companies, restoring investors’ confidence via structured turnaround plans and improving liquidity for low-velocity listed companies, which will generate greater investor participation.

While these are noble causes, the reality is that there is so much the SC can do as most listed companies’ strategic goals and directions are driven and set by the board of directors, who are given the task to ensure adequate shareholder returns, without compromising stakeholders’ interests, as well as meet their respective annual KPIs.

The notion that a company is undervalued, fairly valued, or overvalued is a function of the market, and not purely fundamentals, as different industries have different yardsticks when it comes to valuation perspective.

Of course, there are undervalued companies that have sound fundamentals, but the idea of our regulators stepping in to push a certain agenda is misplaced, as the market should unearth these hidden gems.

It is well and good if the intention here is for corporates to be more open and publish their key KPIs and total return targets, but it cannot be dictated by regulators as to what these financial or operating matrices should be.

There is also a missed opportunity on SC’s part when it comes to capital management tools and how they are used or deployed by listed companies.

Key incentives should be on encouraging share buybacks as well as pushing for these shares to be cancelled, which will then raise the company’s return on equity, earnings per share, book value, and overall market perception on whether a company is fairly valued or otherwise.

Takeover rules

The SC also suggested looking at enhancing its statutory powers to direct and oversee exits.

In this regard, the focus should be on improving the current Malaysian Code on Takeovers and Mergers, where independent advisers have taken a very narrow view, whereby an offer is deemed reasonable although it may not be fair.

The regulators should revise the quote with fairness being the primary objective, while the reasonableness of an offer only comes in if the first test is met.

An offer cannot be reasonable if it is not fair.

Another contention is to streamline the 90% shareholding trigger point for compulsory acquisition and for the purposes of delisting a company from Bursa Malaysia’s official list as a single threshold.

In this way, companies are no longer required to achieve 90% of the remaining shares not already owned before the compulsory acquisition threshold is triggered in a take-over offer.

Overall, the CMP is a holistic blueprint that will take the Malaysian capital market to the next level and anchor the role it plays in nation-building, as well as promoting growth, inclusivity, and sustainability.