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STRONG FUNDAMENTALS: Equities grew 10.5pc to RM2.7tril last year, with key segments posting steady growth
THE Malaysian equity market continues to remain attractive to local and global investors after its strong 2013 performance, says the Securities Commission Malaysia (SC).
The market grew 10.5 per cent to RM2.7 trillion last year, with key market segments posting steady growth on the back of robust local fundamentals.
For this year, a slower earnings outlook, a huge price hike and defensive Malaysian equities could affect the local stock market’s performance, it said in its 2013 annual report released yesterday.
However, the defensive nature of the equity market may raise its relative attractiveness as global investors continue to differentiate the emerging stock markets.
“Growth in earnings per share is expected to drop in 2014 to 7.8 per cent, from 15.7 per cent during 2013. The average estimate for long-term (five-year) earnings per share growth has also moderated, from 11 per cent to 8.7 per cent,” the SC said.
It said investor optimism and central banks’ caution over the world economy’s prospects may result in the capital market exposed to shocks this year.
The SC said stretched valuations and enthusiasm for higher-yielding assets suggest that investors are convinced that global recovery is imminent and that if it falters, monetary support would be forthcoming.
However, it said central banks have signalled their intention to withdraw such support to solidify their economies.
“Markets may, therefore, be prone to shocks if actual growth rates disappoint or if monetary normalisation takes place at a faster pace than expected,” it said.
The SC expects investors to remain exposed to interest rate volatility due to large funds’ flow into yield-driven assets, as well as growth of certain financing structures over the past few years.
At the same time, markets, financial institutions and certain types of investment structures remain tightly linked through short-term leveraged funding and other financing structures.
“An interest rate shock, such as a larger-than-expected reduction in asset purchases by central banks, or a preemptive unwinding of an investment position in anticipation of such a shock could prove to be disruptive if markets were slow to adjust as a result of funding and liquidity squeezes, refinancing and rollover constraints or maturity mismatches,” it noted.
It also said bond markets in emerging markets and Asia re-main vulnerable to interest rate volatility and an increase in cost of funds.
Meanwhile, in a statement, the SC said the market remained resilient during the year under review, despite volatility affecting emerging markets globally.
“The breadth and depth of the market underpinned the strongest period of capital-raising on record with a total of RM240 billion raised over the last two years,” it said.
The Islamic capital market grew by 8.8 per cent to RM1.5 trillion, with syariah-compliant assets representing 56 per cent of the overall capital market.
“Malaysia maintained its leadership role as the world’s largest sukuk market, accounting for 69 per cent of global sukuk issuances in 2013,” it said.
The bond market ended 2013 at RM1 trillion and retained its position as the third-largest in Asia, relative to gross domestic product.
Equity market capitalisation grew to RM1.7 trillion with the benchmark FTSE Bursa Malaysia KLCI rising 10.5 per cent, making the market one of Asia’s top performers.
Significant gains of 36.7 per cent were also recorded by the domestic small-capitalised index, following institutional funds’ higher participation and retail investors’ greater interest.
SC said the capital market continued to be a major source of financing with RM94 billion raised through corporate bonds and initial public offerings.
Bond issuances accounted for 91 per cent of the financing raised.
During the year under review, the fund management industry continued its major role in mobilising domestic savings, with assets under management (AUM) gro-wing by 16.5 per cent to RM588 billion.
Unit trust funds continued to be the largest contributor to AUM’s growth, with net asset value rising to RM336 billion, which is about one-fifth of stock market capitalisation.