Malaysia relaxes rules for foreign fund managers

12 June 2014   Category: News, Asia, Global, Malaysia   By Daniel Shane

Malaysia has announced its intention to relax rules governing foreign ownership in its asset management sector as part of a raft of new measures to reinvigorate the ASEAN country’s financial services industry.

Prime Minister Najib Razak, speaking at an investment conference in Kuala Lumpur, said that foreign companies would be permitted to own entire stakes in unit trust management firms, as well as removing barriers for the entry of new overseas players.

At the same time, Mr. Najib also unveiled plans to drop requirements for mandatory credit ratings on corporate bonds, effective from the start of 2017.

The measures are part of the Malaysian government’s plan to reach developed economy status by 2020.

“Through these measures, we aim to further strengthen the Malaysian capital market, so it may act as the catalyst for sustainable, long-term growth, not just domestically, but also within our region,” Mr. Najib said.

The announcement was “definitely a pleasant surprise”, according to Gerald Ambrose, chief executive officer of Kuala Lumpur-based Aberdeen Islamic Asset Management. Mr. Ambrose told Asia Asset Management that the relaxation in rules was something his and Malaysia’s other foreign-owned licenced fund managers had been “lobbying for for a long time”.

Mr. Ambrose said that the decision added to “a slightly bewildering array of liberalisations taking place in the region”. He cited ASEAN’s so-called ‘passporting’ scheme, which will allow unit trusts meeting generally accepted standards to be distributed in Malaysia, Thailand and Singapore, as well as similar programmes in countries including Australia, New Zealand, Taiwan, Korea and China.

“As is often the case with announcements like this, the precise details have not yet been promulgated, but of course the trend is positive,” he added.

The decision to scrap the requirement for bond ratings will make it “easier for corporates to raise funds”, according to Winson Phoon, fixed-income analyst at Maybank Investment Bank in Kuala Lumpur, and will “likely spur interest at least from the supply side”.

“That said, independent credit rating has been a vital part of the bond market, being the sign post of credit risk and pricing for investors. While scrapping mandatory bond rating opens up more elements of market-based pricing, having an independent rating will continue to be relevant to investors,” Mr. Phoon told Asia Asset Management.

According to statistics from the Securities Commission Malaysia, as of March 31, 2014, there were 79 fund management companies operating in the country, with total AUM of 604.18 billion Malaysian ringgit (US$188.01 billion).