The Annual KLSE Dinner, Kuala Lumpur, 18 December 1993
Without any mark of exaggeration, we can say that this has been a year to be relished by all involved in the stock market. Never in the history of the KLSE had the market seen such an extent of sustained bullishness. Thus I would like to congratulate all sectors of the securities industry -- the investing public especially, the brokering houses, the fund managers, local and foreign, the management of the exchange, and the regulatory authorities -- for an extremely successful year.
But success generates its own challenges. The unprecedented bullishness has stretched the infrastructure of the market to the limit. The capacity of a large number of our stockbroking houses, especially in terms of manpower, is proven inadequate to cope with the bull run. Thus we feel that urgent measures must be taken to beef up capacity and efficiency in all the sectors of the securities industry to meet a very fast growth in trading volumes. To cope with the increasing buoyancy and the ever-increasing volumes transacted daily on the KLSE, stockbroking firms must be equally mindful of their capacity in terms of adequacy of funds. This is crucial to ensure that investors, especially foreign fund managers, who are now showing great confidence in our market, will continue to invest here.
On its part, the Securities Commission is undertaking a study on the capital adequacy of member companies of the KLSE. We recognize that the question of capital adequacy is no mere knee-jerk reaction to raise paid-up capital, but must involve a careful assessment of the composition of assets, their liquidity and sufficiency against liabilities. You can, therefore, expect some intimation of increased capital requirement sometime next year.
Member companies of the KLSE should always be prepared to enhance their operations and services to face structural and market changes, legal and regulatory developments, new products and financial instruments, all leading to greater sophistication and level of integrity of the Malaysian capital market.
We place great emphasis on the need to enhance the capacity of the stockbroking houses because they are in a service-oriented industry, and as such, nothing short of excellence service should be provided to clients, be they giant institutions or small investors. These clients are the life and blood of business and the services rendered must be of the same level of quality and fairness for everyone. Thus it is not in the interest of the industry for stockbroking houses to burden clients by imposing new restrictions on them without sufficient notice.
We are confident that our market is capable of going beyond what it is today. This optimism is grounded on the fundamental strength and potential of our economy. At least in the medium term, growth prospects averaging 7 per cent annually is well within reach and we will judiciously steer our fiscal and monetary policies to ensure sustained growth on a longer term period. This would entail continuous investment in human and physical capital, increased competitiveness, productivity and the unending search for new markets.
To spur economic growth and distribute the wealth of the nation to the public, it is crucial that such a high stake arena as the stock market has an orderly infrastructure and efficient guidelines and regulations. They will lay the foundations for a healthy secondary market and increase the confidence of investors. An efficient stock market should enable companies to raise funds without difficulty and provide liquidity to investors. It should also provide attractive and fair dividend returns to enhance the confidence of investors in the companies that they invest in. However, a stock market with erratic movements of share prices and grossly inflated price-earnings ratios runs the risk of eventually hurting the investors, especially the retail traders. For this reason, we have repeatedly cautioned players, especially the smaller ones, to exercise prudence and to trade within their means.
In the same vein, we would extend similar caution to the investing public as a whole to ensure that the sustained bullishness would not eventually lead to a kind of bubble economy like that which triggered the longest post- war recession in Japan. This remark is certainly not intended to cause alarm because we are nowhere near that position. Nevertheless, we would advise investors, both retail and institutional, to take stock of their capital gains and utilize them for productive reinvestment, for example in manufacturing and the services sectors. Returns from such reinvestment can be ploughed back into the market to ensure continuous returns in various sectors of the economy.
As for the regulatory authorities, namely the Securities Commission, the Registrar of Companies and the KLSE itself, no one should dispute that they have a crucial role to play in ensuring the continuous development of a healthy stock market. In particular, it is of primary concern to them that the investing public be protected against the machinations of unscrupulous market manipulators, racketeers, and merciless short-sellers. Nevertheless, it is fundamental that bona fide traders be allowed to transact in the market with a free hand, without restraint and without inhibition. While we must be vigilant against the recurrence of any form of market manipulation, we must always maintain a balance between enforcing regulations and ensuring the freedom to trade.
In respect of the supervision of public-listed companies, it is the duty of the KLSE to ensure that all companies conform to the listing requirements. However, in doing so, we should exercise impartiality and fairness to everyone.
The KLSE should devise a mechanism which can be triggered off to cater for contingencies in the event of any systems failure. This is essential in order not to jeopardize investor confidence in the technical capability of our exchange. With our trading volumes, during some days, exceeding those of the New York Stock Exchange, adequate measures are urgently needed to address the situation. To cope with unforeseen circumstances, we must constantly be pro-active in our approach.
Finally, we would like the benefits of a healthy stock market to be reaped by a greater section of the public. There is already general public interest in the stock market throughout the country, even in the rural areas. We would like to see enhancement of the stockbroking firms' research capabilities, so that the general public could have freer and quicker access to data for informed investment decisions.
On that note, I wish you a pleasant evening.