91
Based on our analysis of Malaysia’s bond market, investors tend to “buy and hold” until
maturity. The reasons given by local investors include the following:
(i) High demand for Shariah-compliant assets
In January 2017, the EPF launched its Simpanan Shariah fund, with an initial
investment of RM100.0 billion. According to the EPF’s statement, Shariah-compliant
assets represented approximately 45% of its total portfolio as at end-2016. The EPF’s
ongoing efforts to expand its Shariah-compliant investment portfolio is expected to
boost its appetite for sukuk.
(ii) Limited supply of AA-rated debt instruments
Since the global financial crisis, investors have become more cautious in their
investment strategies. Over the years, the issuance of single-A-rated papers in
Malaysia has dwindled due to investors’ demand for at least AA-rated papers.
Generally, AA-rated papers are issued by top-tier blue-chip companies or those that
have secured concession or privatization contracts, with cash flows supported by
strong paymasters (e.g. the GoM or government-related ministries or bodies). As such,
the limited supply of AA-rated papers versus the large appetite for stable fixed-income
assets has led to a lack of secondary trading.
4.2.4 KEY FACTORS UNDERPINNING MALAYSIA’S SUKUK MARKET
Malaysia’s sukuk market has undeniably played a crucial role in propelling the country into the
mainstream financial markets. Anchored by its unique value proposition and underscored by
an ecosystem that has been developed progressively, Malaysia boasts a robust domestic ICM
that looks set to become an international centre for Islamic finance. The key factors highlighted
in Figure 4.5 have played an instrumental role in the success of Malaysia’s sukuk market.