The condition of stock market of one country is related to its economy.

To display the
relationship between stock markets and economy of Malaysia, a comparison has is being made
with the aid of the GDP growth graph and KLCI gain/loss graph from 2003-2012.

It is shown that the effect of any significant movement of the KLCI gain/loss graph often induce
an immediate similar pattern in the GDP growth graph the next year. The effect can be clearly
observed especially during the financial crisis in 2008, where KLCI shows a big loss;
consecutively in the next year, the GDP has negative growth of -1.7% from 4.60%. It could be
safe to assume that for short-term, the condition of stock market is closely related to Malaysias
GDP, and hence the assumption a relatively bad economy (lower GDP) follows after a bad
condition of stock market. However, in the long run, there is no significant relation between two
aspects. They do, however, have a slight tendency to stay close to the equilibrium. Hence, in a
long run, the magnitude of impact of stock market condition to Malaysians economy is not
significant, or barely has any important relation.
Generally, capital market plays a vital role in sustaining economic growth and development. The
buy and sell process of securities allows a fair distribution of financial resources for industries.
As industries and sometimes government agency needs funds to run; larger volume of fund
injection is needed to make its major investments and improvement, the capital market serves
its purpose as a source of obtaining financial resources (funds). Business entities may trade
their securities, bonds and stocks for funds, allowing a fair allocation of financial resources
depending on how well the company is doing. Besides that, simply put, the capital market allows
liquidity. As only intangible assets such as bonds are traded in a capital market, the liquidity is
much higher than having investors making direct investment in tangible assets, which may be
difficult and not affordable to a fair portion of investors. The liquidity advantage mentioned
allows investors to draw back from initial investments easily by simply transaction of securities,
thus attracting more investors to willingly invest into industries as the perceived risk is much
lower. That being said, a healthy well-functioning financial market excels in its liquidity and
volume. Small to medium enterprises (SME) which account for 98.1% in all enterprises in
Malaysia are the biggest force behind economic growth; creating the supply-demand chain,
creating jobs and generating wealth. (Martin, 2012). Having their company listed in the capital
market create chances to get investors, thus gaining overall improvement and strengthen their
role in the economic model. (E.g. creating more jobs).
As a good capital market brings large volume of funds option for public and private sector, it is
crucial to maintain a remarkable growth of capital market, as it will bring significant positive
effect to a countrys economic growth. In 2011, the Securities Commission of Malaysia initiates
the second Capital Market Master plan (CMP2) following the discontinued CMP1 which received
positive outcome. CMMP aims to improve Malaysias capital market liquidity, encourage
internationalism to explore global opportunity, induce capital formation and to bring up efficiency
of the market as a whole. (Shamsuddin, 2005). Its goal is to boost the capital markets volume
to RM5.8 trillion by approximately ten years after 2011, when capital market volume marked
RM2 trillion. (Ranjit, 2008)

Besides, to prevent the activities of capital market lacking of new blood emerging, recent
developments seems to axis by educating young people about capital market and to ignite their
interest. By April 2014 Bursa Malaysia introduced an interactive stock trading platform,
Marketplace. It is expected to attract investors of the younger generation to participate in the
capital market, increasing supply of financial professionals to support and facilitates the growth
of Malaysians capital market. (Gilbert, 2014)
Following the Securities Commission Act 1993, Securities Commission of Malaysia (SC) is
authorized with investigational and executional power, in order to accelerate the progress of
developing competitiveness and efficiency of Malaysias capital market, also to safeguard a
certain extend of transparency and security. (Shamsuddin, 2005) Recognizing the Minister of
Finance as its upmost authority, its aim is to protect investors by performing numbers of
regulatory actions towards financial activities involving personas and corporations. In
conjunction with enforcement authorities, SC seek to eliminate shady misconducts or loophole
abusers by protecting whistle blower, taking initiative to eradicate white collar crimes in the
financial scene of Malaysia and educating investors of the regulations and recent investing
risks. (Shamsuddin, 2005)

So far there is several actions taken by different bodies mentioned above that contributes to the
competitive ability of Malaysias market place, which includes plans from SC and efforts by
Bursa Malaysia to improve the capital market. One point worth mentioning is the effect of
CMP2.by SC. By encouraging internationalism it opens up the gateway for foreign investor to
access Malaysians capital market, hence creating more chance of having foreign investors
invest into Malaysias market, having inflow of funds from other countries. (Shamsuddin, 2005)
Besides those aspects, the demutualization of Kuala Lumpur Stock Exchange into Bursa
Malaysia in 2004, turning from a company limited to public company limited. (Saha, 2005) By
demutualizing a stock exchange like this, it encourage more investors taking part in governing
exchanges, thus gaining flexibility and access to global markets. The demutualization
mentioned also allows more access to financial resources raised by private investment by the
company and equity offerings. (Saha, 2005) Besides, there are also aid from private sector and
non-profit organization (e.g. GRP1000 and Capital Market Development Fund) in conjunction
with the government that helps educating financial knowledge to young graduates either by
sponsoring or providing training; this prevents a shortage of professionals to sustain the
competitiveness of the capital market. (GRP1000 online, 2008)

Malaysia also practices a certain extend of transparency in its capital market. For instance,
starting from October 1997, Bond Information and Dissemination System (BIDS) is formed.
(Awang, 2012) Through that system, detailed record of corporate bond transactions spanned a
decade are displayed to the public. This level of transparency allows the public and potential
investors to have detailed information before and after trade. BIDS is positively acclaimed as the
post-trade transparency boosts investors confidence, as the public can examine the capital
markets liquidity themselves, free from biased source of information. (Awang, 2012)
Malaysias Islam Capital Market (ICM) underwent immerse growth since the birth of the first
Islamic financial institution Tabung Haji (pilgrim fund board) in 1969. (Razali, 2012). A well
composed framework of ICM by Bank Islam Berhad in 1983 and the implementation of Takaful
Act 1984 successfully opened up the Islam financial scene. (Razali, 2012) Non-Islamic
conventional financial institutions were also granted the right to set up Islamic subsidies as an
aftermath of the implemented act. (Razali, 2012) A well-managed Shariah compatible starting
point for ICM in Malaysia by the government and financial institution is one of the reasons ICM
undergoing a stable growth back then until today. Malaysia also possesses internal geopolitical
advantage in developing ICM as a majority of Malaysians are Muslims. On the other hand, Islam
is the second dominant religion in the world. Being a pioneer of Islamic economic model,
Malaysia unlocked the potential of wide Islamic financial product range (e.g. Takaful, Shariah
Stocks, Sukuk market, etc.) with Islamic dominant countries worldwide. (Hisham, 2012)



Currently as the biggest and one of the oldest Sukuk issuers, Malaysias ICM continues to build
up maturities, and when non-dominant countries opened up Sukuk trades for their Muslim
community, Sukuk market growth in Malaysia has a positive potential. (Hisham, 2012)
Government effort in commercializing Islamic financial product, if persisted into the future, may
continue catalysts growth of ICM.












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