Progress cannot happen quick enough for Malaysian investors

Progress is being made in the domestic bond markets, but Malaysian investors who took part in FinanceAsia''s local currency bond poll 2001 are still not satisfied.
The Malaysian bond market has seen some important developments this year, most of which have centered around the 10-year capital markets master plan introduced in April by the Securities Commission (SC).

This was chiefly designed to help expand the nation's fundraising capacity, bring Malaysia in line with best international practise and included measures to diversify the investor base and improve disclosure in corporate bond transactions.

On the face of it, it looks impressive, but responses from Malaysian investors participating in the FinanceAsia local currency bond poll 2001 show that they are not satisfied yet.

Of the six questions put to the 111 participants in the poll, only the one on whether they were satisfied with the government's role in supporting the market rated better than average, with 69% giving their approval.

The story is not so good elsewhere however. A lack of liquidity is still a major source of concern with 69.5% of investors dissatisfied. "The relative authorities must first of all provide sufficient liquidity for the bond markets and ensure the bid and offer quotes are easily obtainable by investors," says one investor.

At present, foreign firms are not allowed to issue bonds in the domestic market and this needs to change according to one fund manager. "The local market on its own does not have enough issuers to promote an active and diversified market," he argues.

The Malaysian market also needs to see improvements in both the quality of information and transparency according to 69% of poll participants. "The markets are not as effective as hoped due to a lack of transparency and liquidity," remarks one respondent. "Better disclosure is required from issuers and then more frequent coverage is needed on individuals by research houses."

Another common criticism surrounded the lack of hedging instruments and new products in the market, but, at least as far new products go, some improvements have been made. Shortly after the capital markets plan was unveiled, the SC set out the guidelines for the securitization market.

There has already been one international deal completed this year — a $250 million deal for First Silicon that was arranged by Nomura — and many potential domestic issuers are believed to be contemplating using this as a new source of funding.

Some of our participants at least recognized the significance of this development. "Things are improving with the introduction of new products such as asset-backed securities and collateralized bond obligations.

As to their banks of choice, local banks dominated. In the main category for best overall bank in terms of origination, sales and trading, CIMB scooped 83% of the votes.

The bank also enjoyed top spot as the bank used most often in the primary market. Using a weighted system in which three banks could be selected, with the best bank gaining five points, the second choice three and the third one, CIMB scored 65 points. This placed it comfortably ahead of HSBC with 25 and Arab-Malaysian Merchant Bank with 17.

HSBC added to the same accolade in Singapore and was voted best in corporate credit research. The bank's top score of 36 beat off the challenges of Citibank, second with 30, and Deutsche Bank with 18 points.

Investors selected Citibank as best foreign bank in the secondary market, just as their Taiwanese counterparts did. Citibank's score of 53 bettered the 46 points of HSBC and 25 registered by Deutsche.

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