Iosco: Malaysia in good shape to withstand shocks

Iosco: Malaysia in good shape to withstand shocks

FED RATE HIKE:   Sound Islamic finance market to act as buffer, says its  research head

CONCERNS over rising United States  interest rates have been plaguing  capital markets in emerging economies, but Malaysia is in a good position to  withstand any shocks, said International Organisation of Securities Commissions  (Iosco).

It said the country’s sound and globally recognised Islamic finance market  would act as buffer to the impending shocks created by the Western markets.

Iosco head of research department Werner Bijkerk said he was aware that the  two biggest issues plaguing global emerging markets this year would be the US  Federal Reserve interest rate hike and the potential drying up of stocks and  bonds.

“Malaysia is in a good shape as it has a developed Islamic finance market,  which is less related and less vulnerable to shocks from the Western world and  that’s certainly beneficial for Malaysia,” he said.

Bijkerk said Malaysia, which has gained valuable experience from the 1997  Asian financial crisis, is now better prepared to withstand any difficulties as  the structure of the bond market and the economy and quality of its regulators  have also improved.

“The concern now is that we are not privy to the speed and the level of the  increase of the interest rates. We have seen the raising of the Treasury bill  from two to three per cent, which is a 50 per cent growth. That is a significant  increase and it has created flows within global market, including Malaysia,” he  said.

Bijkerk said it will be prudent for economies to start taking a long- term  approach in minimising the possible US external risk.

“Regulators and central banks should start looking into conducting  stress-testing of the economy, analyse global perspectives and how markets have  reacted in the past due to the pressure,” he said.

He added that countries should also take a leaf out of Malaysia’s book and  diversify its market so that it will lessen the potential economic damage.

The Iosco board met here last week for the first time in Asia to discuss  issues facing global financial markets and securities regulators, with a focus  on the resilience of emerging markets.

The Growth and Emerging Markets (GEM) committee is the largest within the  secretariat, representing 75 per cent of its members.

— Business Times, 24 Feb 2014