DATUK MUHAMAD UMAR SWIFT – Chief Executive Officer Bursa Malaysia Berhad
Malaysia is globally known as the premier Islamic finance market, and is currently the lead in promoting Sustainable and Responsible Investing (SRI) proposition based on its shared values with Islamic finance. What role is Bursa Malaysia playing to champion this?
At Bursa Malaysia, we strongly believe the convergence of Shari’a investing and SRI has a vital contributing role to play in driving a dynamic and vibrant marketplace. There is so much potential within this space for further development, and vast opportunities for stakeholders. Shari’a investing, beyond being a faith-related choice, is closely related to SRI that looks into ESG (Environment, Social, Governance) factors. Just as it is with SRI, Shari’a-compliant products and services promote good socio-economic values, and attract those who see value in sustainable, inclusive and responsible investing. Shari’a investing allows investors to generate social and/or environmental benefits alongside financial returns, creating a win-win situation for investors, investee companies and the society at large.
If you look at some of the most successful businesses in the world, you will find that they tend to have strong principles at their very core. They have tangible benefits, create progress, are transparent about their dealings, and are also sustainable businesses that show steady growth with dependable profits. In this day and age, investors around the world seek these opportunities to diversify their portfolios and grow value.
With this in mind, we continually endeavour to provide a range of products and services catered to SRI. Notably, the rapid rise of interest in SRI complements the growth of Shari’a-compliant investing, leveraging our end-to-end Shari’a-compliant platform, Bursa Malaysia-i. The convergence of sustainability, SRI and Shari’a investing plays a significant role in facilitating and delivering our unique proposition to further build our strength and competitive edge in the Islamic capital market space.
As an Exchange and a PLC, Bursa Malaysia is proud to have championed a number of firsts in this area and has been recognised internationally for our efforts. Back in 2014, we were the first emerging market to launch the globally benchmarked FTSE4Good Bursa Malaysia (F4GBM) Index to measure the performance of Malaysia’s PLCs demonstrating strong ESG practices. As a reflection of the increasing quality and strength of issuers in this respect, we have managed to grow the number of constituents from the initial 24 to 69 as at December 2019 due to improved ESG disclosure and practices. Currently, 49 out of 69 (71.0%) of the F4GBM Index constituents are both ESG and Shari’a-compliant.
In 2018, we became the first exchange in the world to introduce a one-stop knowledge portal on corporate governance, sustainability and responsible investing; known as BursaSustain. We also became the first Exchange in ASEAN to adopt the Taskforce on Climate-Related Financial Disclosures (TCFD) recommendations into our reporting guidance (Bursa Sustainability Report) in 2018. At the same time we led by example by being the first Malaysian PLC to adopt the TCFD recommendations.
Bursa Malaysia is now classified as a Shari’a-compliant counter on the Exchange, and effectively also becoming an ESG and Shari’a-compliant constituent of the F4GBM Index. This was pursuant to the updated list of Shari’a-compliant securities released by the Securities Commission Malaysia’s (SC) on May 31, 2019; following approval of its Shari’a Advisory Council (SAC). Achieving Shari’a-compliant status fulfils a long-held aspiration of Bursa Malaysia, and reinforces Malaysia’s standing as a global leader in the Islamic market. Our Shari’a-compliant status further strengthens Bursa Malaysia’s commitment to continue offering an even wider and more innovative range of Shari’a-compliant products to the market. This will contribute towards attracting a larger Shari’a investor base as well as new classes of investors interested in SRI that share similar principles with Shari’a investing, ultimately enhancing the vibrancy and liquidity of the market.
What is, in your view, the greatest challenge faced by Bursa Malaysia in the development of the Malaysian capital market in general and Islamic capital market in particular? What are your plans to spearhead Bursa Malaysia towards its next phase of growth while enhancing its global competitiveness?
As capital markets continue to evolve and become more sophisticated, Bursa Malaysia faces increasing challenges from both regional and international exchanges. The emergence of new technologies and greater interconnectivity in the global financial markets have further intensified the competitive pressure we face. But at the same time, they have also amplified the opportunities available.
One of the biggest challenges in promoting Islamic capital market and Shari’a-compliant offerings is to attract non-Muslim investors. The majority of non-Muslim investors do not really look at the Shari’a compliance of securities. What matters most to these investors is the performance of the securities or the investment portfolio itself. They view investing in Shari’a-compliant securities as an alternative investment option. We would like to shift this perception. We want investors to look at Shari’a investing as part of ethical and responsible investing.
Bursa Malaysia, as an exchange, plays a very important role as the Islamic capital marketplace that provides unique opportunities and a trusted environment for companies and investors to grow. To enhance the ecosystem of SRI, we are committed to changing the mindset and perception of investors by highlighting the values of Shari’a-compliant investment as part of ethical and sustainable investing. Looking at the tremendous growth of the global and domestic Islamic funds industry following the increase in the number of high-net-worth individuals globally and the rising demand for Shari’a-compliant instruments; Bursa Malaysia has developed a strategy roadmap and identified strategic focus areas in our pursuit to become a vibrant trading centre for Islamic-based capital market offerings. This also entails expanding our domestic and foreign client base to remain the leading exchange in the Islamic capital market.
In terms of performance, the growth of Shari’a market capitalisation and Average Daily Trading Value (ADV) of Shari’a-compliant securities from 2010 to 2019 grew 38.9% and 34.8%, respectively. As a leading emerging market exchange that offers a good breadth of Shari’a-compliant securities and with more than 70% of listed companies categorised as Shari’a-compliant, Bursa Malaysia has a solid foundation to continue to develop its niche in the Islamic capital market.
Shari’a indices have consistently outperformed its conventional counterparts over the past ten years, indicating Islamic investment is an attractive source of value for investors. The FTSE Bursa Malaysia Hijrah Shari’a Index, comprising of the 30 largest Shari’a-compliant companies on the FTSE Bursa Malaysia EMAS Index, has consistently outperformed the FTSE Bursa Malaysia KLCI, growing about 26.4% from 2010 to December 2019. This positive trend is expected to continue on the back of the continuous growth in Islamic funds.
The continued development of the market ecosystem is a top priority and crucial for Bursa Malaysia as it is the key to unlocking the sustainable long-term value of our marketplace and transforming us into a robust developed market. We continue to enhance our market ecosystem based on our initiatives with a focus on expanding our range of products and services, deepening market liquidity and growing our investor base to instil greater resilience and dynamism into our market as a whole.
We will strengthen our business growth and competitiveness through innovation and technology. We see technology as a positive disruption – creating new fields of economic endeavour, driving efficiencies in operations, accelerating our innovative capacities and providing healthy competitive pressures. For Bursa Malaysia, technology is helping us grow our capabilities, including the breadth and depth of our services and offerings.
Some of the key drivers in this area is the offering of e-CDS, the digital delivery of a personalised, easily accessible, at-your-fingertips e-services experience for investors on Bursa Malaysia, as well as an ongoing project to modernise core systems that form the backbone of our business. Enterprise-wide, we are also focusing our efforts to become a data-driven organisation.
Besides that, we have also introduced “Shari’a mode” on our Bursa Marketplace website, which is the first-of-its-kind virtual marketplace that brings a unique experience to all investors, especially new investors. The introduction of the Shari’a mode enables investors who seek end-to-end Shari’a investing to filter the market, indices, stocks and other products to be Shari’a-compliant to ease their investing journey.
At the same time, we are leveraging the robustness of our high-performance organisation culture to focus on collaborations and partnerships with organisations that complement our business strategies and strengths, and encourage a growth mindset to enable our people to meet current and future challenges.
In terms of innovation, Bursa Malaysia has championed a number of world’s first innovative Islamic financial market instruments and trading alternatives. What are the key focus areas for growth to fuel Islamic finance and Islamic capital market in the near future?
Bursa Malaysia is a global leader in Islamic capital market innovations, and has pioneered several initiatives catering to the requirements of discerning investors, including Bursa Malaysia-i (world’s first end-to-end Shari’a-compliant investing platform); Bursa Suq-Al-Sila’ or BSAS (world’s first Shari’a-compliant commodity trading platform); as well as Islamic Securities Selling and Buying Negotiated Transaction or ISSBNT (world’s first Shari’a-compliant alternative to securities borrowing and lending). These innovations reflect our strength in being ahead of the curve in Islamic capital market services and infrastructure.
With the increasing demand of Shari’a-compliant instruments, we are also expanding our market with new products and services creation to cater to the needs of investors, be it retailers or institutions. Our priority remains to position Malaysia as a center of Shari’a-compliant investment and fundraising in the region. This will require more foreign participation across our markets as well as greater linkages with our regional and global counterparts, which are especially important in view of heightened competition and increased globalisation. Bursa Malaysia will leverage on existing strategic partnerships while fostering new or budding relationships to build the Exchange’s regional connectivity.
In the next few years, we expect to enter into more of such collaborations to better reach investors in key markets. We endeavour to remain as the leading exchange in the Islamic capital market and expand the global reach of our innovative Bursa Malaysia-i platform to capitalise on the growing demand for asset diversification or socially responsible investing.
“We endeavour to continue to be the leading exchange in the Islamic capital market and expand the global reach of our innovative Bursa Malaysia-i platform to capitalise on the growing demand for asset diversification or socially responsible investing.”
“We strongly believe the convergence of Shari’a investing and SRI has a vital contributing role to play in driving a dynamic and vibrant marketplace.”
The Islamic finance and capital market are significant in Malaysia but relatively small globally. What role is Bursa Malaysia playing to help expand the ecosystem?
Bursa Malaysia remains vibrant and competitive, continuing its part to uphold Malaysia’s position as a global leader in Islamic finance. The Exchange provides a wide range of Islamic products and services. Part of our efforts to help expand the ecosystem is by collaborating with global players, market intermediaries as well as industry partners. With more foreign participation with our regional and global counterparts, we are able to heighten the competition and at the same time; position Malaysia as a centre of investment and fundraising. Bursa Malaysia will continue to foster relationships with other industry partners for regional connectivity.
The regional expansion has been identified as critical to unlocking the value of Bursa Malaysia-i and BSAS. The aim is to increase the number of foreign investors and participants using our platforms as well as to improve regional market connectivity to boost trades on our platforms.
In 2018 and 2019, BSAS admitted banks from Iraq, Bahrain, Tanzania, Kenya, Tajikistan, South Africa, and Dubai and Ajman from the UAE as new members of our BSAS platform. In total, 49 new members were admitted in 2019, bringing the total number of BSAS members to 222 in 2019 from 173 in 2018. Our plan is to continue expanding our global reach through 2020 to countries such as Nigeria and Djibouti. We are also looking forward to expanding our new metal-based commodity supply by early 2020.
Additionally, our Bursa Malaysia-i platform has been seeing growing regional interest. This development marks the growing interest in responsible and sustainable investments within a Shari’a-compliant marketplace.
Our record of providing innovative, market-based solutions has enabled the Exchange to earn global recognition as the best and most innovative exchange in the area of Shari’a investment. We strive to further extend our connectivity to regional and global capital markets through strategic partnerships that facilitate cross-border movements of capital and investments such as cross-listing of investment products. We continue to build and forge ties with other leading exchanges to seize opportunities in cross-border flows, whilst positioning Malaysia as the hub of ASEAN. We believe our clear leadership in the Islamic capital market can be leveraged to build linkages with markets, with propensity and interest towards Shari’a-compliant investments.
“My vision for Bursa Malaysia is to help everyone rise to their respective next level. To realise this vision, Bursa Malaysia is adopting a ‘triple-play’ focus.”
What is your vision for Bursa Malaysia? What are your personal expectations for the growth of the Malaysian capital market?
Many people are only aware of the trading and investing facet of the stock market – an opportunity to gain profits or dividends on investments. That’s a little one-sided. Stock markets are also where companies raise money to build their businesses. In Malaysia, where SMEs are a huge proportion of the economy, the capital market functions as a powerful feed-line, delivering capital to where it can drive not just the companies in question but the entire economy and everyone in it, even if you’re not a businessman or an investor. It is more accurate and critical to see the stock market as a virtuous cycle.
That is why we focus on opportunities because it helps us to align ourselves and everyone else to what we’re trying to build. Focusing on opportunities drives us to better understand all players in the market, and help deliver the tools, abilities and conditions in which they are better able to grow value. My vision for Bursa Malaysia is to help everyone rise to their respective next level. To realise this vision, Bursa Malaysia is adopting a ‘triple-play’ focus.
Firstly, we want to be an agile organisation of true ability by collaborating and mobilising minds to challenge the status quo. This is the crux of building a high-performance organisation. It is how we break down barriers between ideas and action, and the speed at which we can do it, as well as developing individual abilities and building trust amongst other people. This is a long journey, but one we must take. It is a pre-requisite of the other efforts we plan to pursue in developing Bursa Malaysia further.
Secondly, we want to put the power of now in the hands of our stakeholders. Our goal is simple – to deliver a remarkable experience for investors and businesses. It is all about accessibility from information to movements, regional/global trends, and new possibilities. We are doing this by enhancing our digital touchpoints such as the Bursa Marketplace and BursaSustain, which are already well-received but we believe have more to give. We are also driving internationalisation through links with peer markets so as to draw more global investors into our markets. At the same time, we are also in close consultation with policymakers and regulators to help shape the growth and competitiveness of the market.
Lastly, we need to see our future and build our place within it. New opportunities are being unlocked with the power of data and new technologies. Besides delivering greater efficiencies and enhanced services, they can give us the ability to open up new markets and new ways of driving our capital market. Broadly, it involves modernising our post-trade services and infrastructure to transform our efficiency and ability to offer new services, establish the building blocks we need to be able to leverage data, create a seamless and efficient experience for investors and also to collaborate with or invest in companies driving novel technologies in the area of Fintech.
There’s a long journey ahead of us and we are committed to keep the lines of communication open and to share more as we go along. Our intention is simple, to build trust in the Bursa Malaysia’s brand through our actions and through consistent, clear and open communication with all our stakeholders.
There are many immediate challenges facing the market, the economy and the nation as a whole. But these are to be expected in an economy that is growing at an expected GDP of 4.5%. Very few economies achieve this level of growth repeatedly, over the long term. Many of the challenges fundamentally arise from having an appropriate depth of understanding, insight, and purpose.
Focusing on opportunities allow us to help grow a nation of investors, who can be part of helping businesses power their growth via the capital markets, and becoming the next regional champions or even unicorns. This in turn benefits the national economy, bringing us full circle to all who live and draw from its strength.
