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The Institute for Capital Market Research Malaysia (ICMR) today launched its latest research report titled “New Age Vulnerabilities: Understanding Investor Vulnerability within the Malaysian Context”. Based on its findings, the report highlights that Malaysians experience overlapping vulnerability drivers that impair their ability to make sound financial decisions. As a result, they are more likely to fall victim to scams, be inadequately prepared for retirement, and face everyday difficulties while investing. 

ICMR’s research was motivated by the need to develop a comprehensive and empirically informed understanding of how Malaysians experience vulnerability in their investment journeys. Many investors today are at risk of suffering fraud, financial exploitation, or the effects of unsuitable investments due to the changing nature of financial services, financial decision-making, and access to information. Indeed, 84% of surveyed respondents said they had received advice on financial products that turned out to be a scam and 36% had lost monies to a scam.

ICMR groups the key drivers of investor vulnerability into three broad categories based on their characteristics: situational (changing circumstances), investor behaviour and accessibility to financial products and services, as well as issues related to the industry. These categories were informed by a benchmarking exercise that compared definitions used by local and global regulators. A nationwide quantitative survey was then implemented alongside qualitative focus group discussions to better understand the investing experiences of Malaysians.

The study found a wide majority of respondents being exposed to behavioural and access drivers (93%), followed by situational drivers (54%) and industry-related drivers (51%). Within the first category, 64% felt either financially unstable or living paycheck-to-paycheck, hence experiencing mental stress. As for situational drivers, 61% felt negatively impacted by difficult events like job loss, income shock, or the deaths of close relatives. Meanwhile, 70% experienced difficulties in engaging with financial service providers, including unsuitable pricing or terms.  

Nonetheless, the findings also indicate that different types of vulnerability are frequently overlapping and closely interconnected – meaning that financial distress is not always attributable to a particular cause. The experiences within each vulnerability category are as diverse as the experiences of vulnerability across the group as a whole. Moreover, financial or investment scams have cut across all groups of the surveyed population, with those susceptible driven greatly by greed and herding behaviour from the influence of family or friends.

The third Capital Market Masterplan (CMP3) launched by the Securities Commission Malaysia (SC) in 2021 mentions the “identification and assessment of vulnerable investors” as a top priority over the next five years for “enhancing focus on protecting investors against vulnerabilities”. As such, ICMR’s research seeks to assist the SC’s enhancement of investor frameworks and protection efforts for reducing the harm experienced by vulnerable investors, as well as provide context for firms to deal with vulnerable clients and provide appropriate levels of care.

In this regard, ICMR recommends a dual and systematic approach to address investor vulnerability in the Malaysian context. Firstly, there is a need to build financial resilience across the population by addressing intersectional vulnerabilities, which include both structural and behavioural barriers. This must then be complemented with a targeted approach to deal with vulnerable investors, including enhanced suitability assessments and regulatory oversight as well as educational and training programmes.

“Our research has shown that vulnerability drivers can impact Malaysian households and individuals at many different life stages, situations, health levels, even different investment experiences. The combination of behavioural and structural issues goes beyond the ambit of any single regulator or agency, which is why there is a need for a whole-of-nation approach across jurisdictions. In line with this, behavioural insights including the trigger points identified by ICMR should be incorporated into every stage of a policy cycle for more effective implementation”, said Datin Azleen Osman Rani, Director of ICMR.

ICMR’s survey was distributed from April to June 2022 to 2,019 respondents across East and West Malaysia, aged between 18 – 70 years old. Hard recruitment quotas were used to ensure a representative sample of age, racial, and monthly household income distribution akin to the Malaysian Department of Statistics’ Census. To provide additional context to the quantitative survey responses, qualitative interviews were conducted from July to September 2022 with five targeted focus groups between the ages of 25 – 66 years old.

For more information about ICMR’s research findings, methodology, and recommendations, please download the full report at https://www.icmr.my/new-age-vulnerabilities-understanding-investor-vulnerability-within-the-malaysian-context/.

Young people matter. With older generations increasingly reaching retirement age, millennials and Gen Z are becoming increasingly important to the economy. They are now the largest generational cohorts, with the power to influence consumer and market trends over the next decade. But these younger generations face challenges, including digitalization and a fast-changing job market.

Given the sheer size and potential of millennials and Gen Z, the Institute for Capital Market Research Malaysia (ICMR) recently conducted a nationwide study to understand better their issues, challenges, and behaviours regarding personal finance and investing. This article looks closely at ICMR’s research data and what it tells us about the next generation of Malaysian investors.

Not All Young Investors Are Alike

As with any generation, young investors are not a monolithic group – their individual needs and preferences differ due to various factors, from life stage to upbringing to income. ICMR’s survey, distributed to 1,500 respondents, found that millennials and Gen Z Malaysians can be categorized into three groups, each with unique characteristics.

22% of respondents formed Group A, comprised of those not investing in investment products. Meanwhile, Group B, making up 33% of respondents, only invests in Amanah Saham Nasional Berhad (ASNB) funds and/or unit trusts. The remaining 45% making up Group C, invests in various other investment products not limited to just ASNB and unit trusts.

Although millennials and Gen Z investors generally share attitudinal and cultural similarities that separate them from older generations – there are also distinct demographic and behavioural differences between the three groups of young investors identified by ICMR. These differences can be understood in demographics and income, financial literacy and risk tolerance, and income allocation.

Demographics And Income

Regarding demographics, there are more females in Group A and B, whereas 60% of Group C are males. A higher proportion from the East Coast does not invest (Group A), while Group C has a higher proportion from the Central region. Moreover, although Malays comprise only 58% of total respondents, they form the majority of those who do not invest (63%).

More notably, there are differences in household income levels between all three groups. While 69% of Group A earn less than RM5,000 in monthly household income, 56% of Group B earn between RM3,000 – RM7,000. Meanwhile, respondents who fall under Group C were found to have significantly higher incomes, with 31% having household incomes above RM10,000.

Nonetheless, in-depth responses of individuals via qualitative interviews with ICMR suggest that the level of disposable income matters more than earned income. Some interviewees felt they could start investing while making RM3,000 a month, while others only felt comfortable after earning RM7,000 a month. But all interviewees agreed that they are more likely to invest if their disposable income increases.

“I recently changed jobs and got a pay rise, and it’s been much easier for me to invest now. Before this, even though I was getting decent pay for my age, I found it hard because I enjoy my lifestyle like going out for meals with friends, and that’s not something I’m willing to give up”

Roshan, 28, consultant

Financial Literacy And Risk Tolerance

ICMR’s research suggests a link between financial knowledge, financial confidence, and risk tolerance with the likelihood of investing and the kind of products invested in. For instance, someone who does not know much about financial matters and has little financial confidence is also unwilling to take risks – hence not investing and falling into Group A.

This could also explain behavioural differences between Group B, which invests only in ASNB funds or unit trust products, and Group C, which invests in other capital market products. The first unit trust company in Malaysia was set up in 1959. This might be why retail investors are most comfortable with unit trust products, considering their long history in Malaysia.

Additionally, many investors who only invest in ASNB funds or unit trust products (Group B) tend to be less risk tolerant and financially confident. In contrast, those who invest in other capital market products like shares or cryptocurrency, which are perceived to be riskier, tend to have higher risk tolerance levels and feel more financially confident.

“I have an ASNB account, although allocations can be hard for a Chinese. I consider the money in ASNB and my unit trust savings because they’re safer. I have some foreign shares and some cryptocurrency, which I consider investing. I make sure I keep 60 – 70% of my money in the safer options and make sure they’re on regulated platforms, and then I’m happy to take more risks with the other investments”

Han Cheong, 32, civil servant

Income Allocation

Behavioural shifts across the groups are also reflected in ICMR’s survey results on income allocation. A higher percentage of Group C stated that they set aside amounts for investing only (27%) or separate amounts for savings and investing (30%). On the other hand, a higher percentage in Group B stated that they set aside money for savings only (52%).

This indicates a shift in mental accounting from Group B to Group C, with those who invest in other capital market products being more likely to distinguish between saving and investing. Mental accounting refers to the tendency to mentally sort out funds into separate accounts, affecting how a person thinks about their spending.

Complementing the survey data above, findings from ICMR’s qualitative interviews also suggest that many young Malaysians perceive safer investment products as “savings.” In contrast, riskier products are perceived as “investing.” This tendency concerns their own personal risk assessments and methods of mentally dividing their money.

“I opened an ASB account and took out an RM50,000 ASB loan because my mother said I should. I pay the loan monthly, but I honestly have no idea how it works. I didn’t know until now that I could also put money regularly into my account if I wanted to”

Haris, 25, journalist

Catching Up With Young Investors

ICMR’s research findings on young investors highlight that many factors are linked to one’s investment behaviour, including income, financial knowledge or confidence, and risk tolerance. Policymakers and industry players should avoid a “one-size-fits-all” approach when dealing with millennial or Gen Z investors and instead adopt more nuanced or tiered policies and products.

As for young investors who are still unsure or not confident about investing, leveraging behavioral insights to incorporate the right tools, self-awareness, and techniques to navigate their personal finances can help. Understanding their biases and using heuristics (mental shortcuts) to simplify the investment decision-making process will encourage safer and more strategic investing habits for the long term.

This article is part of a content series by the Institute for Capital Market Research (ICMR). Follow ICMR’s Facebook page to stay updated about behavioral tips and insights for better investing habits. To learn more about ICMR’s research on millennials and Gen Z, visit www.icmr.my or download the full report here.

About the Authors

The Securities Commission Malaysia (SC) is pleased to announce the release of its Annual Report 2022 (AR 2022), the Audit Oversight Board Annual Report 2022 (AOB Report 2022), and the inaugural Capital Market Stability Review 2022 (CMSR 2022).

The SC Chairman, Dato’ Seri Dr. Awang Adek Hussin, said the Malaysian capital market remained orderly and continued to finance the economy, with total funds raised hitting a record high of RM179.4 billion. This exceeded the 5-year pre-pandemic average of RM121.4 billion.

The 2022 performance, led by a record amount of corporate bond and sukuk issuances, was achieved despite increased global market volatility and headwinds. Globally, the capital market registered weaker performance in 2022 with the continued tightening of financial conditions in major markets, inflationary pressures, and the repercussions of the Ukraine war.

Dato’ Seri Dr. Awang Adek said the continued resiliency of the Malaysian capital market highlighted the value of exercising prudence and shared accountability while capitalising on growth prospects that arise. “This approach allows the market to better manage risks, preserves overall financial resilience and stability, and supports economic growth,” he said.

AR 2022 highlights the SC’s efforts in promoting market integrity, investor protection, and the development of the Malaysian capital market. This ensured the capital market’s role in financing sustainable development, while facilitating continued innovation to address emerging risks and
challenges.

Among the key highlights outlined in AR 2022 are:

• Equity crowdfunding (ECF) and peer-to-peer financing (P2P) platforms continue to facilitate the funding needs of micro, small and medium enterprises (MSMEs), with the total funds raised recording an increase of 26% from RM1.4 billion in 2021 to RM1.7 billion in 2022. Since their inception, ECF and P2P have helped 7,218 MSMEs raise over RM4.4 billion.
• The Islamic capital market (ICM) comprising total sukuk outstanding and Shariah-compliant equity market capitalisation, saw a marginal increase by 0.6% compared to the previous year. The ICM has increased at a compound annual growth rate (CAGR) of 4.2%, driven by the increase in total sukuk outstanding (9.3% p.a) while Shariah-compliant equities remained relative flat (0.1% p.a.). Ongoing efforts to broaden and deepen the ICM were made, including the issuance of the Guidelines on Islamic Capital Market Products and Services to facilitate efficient access to the ICM ecosystem.
• The capital market continues to prioritise good corporate governance and sustainability practices. As of 1 March 2023, 30% of the top 100 public listed companies (PLCs) are led by women, and all top 100 PLCs have at least one-woman director on the board.
• To address scams and unlicensed activities, the SC had established an internal task force. The establishment of an internal task force is a proactive measure to ensure that such activities are identified and dealt with in a timely manner. In 2022, 185 websites were blocked and 304 new entries were added to the SC’s Investor Alert List, compared to 143 websites and 134 new entries in 2021.

In 2022, the SC took criminal and civil actions related to various serious breaches such as disclosure breaches, securities fraud and unlicensed activities which resulted amongst others, numerous criminal convictions and RM12.9 million in total fines.

Three Special Feature articles are published in AR 2022:

• Towards Greater Investor Protection: Understanding Investors’ Vulnerabilities
• Reinvigorating Capital Formation for Sustainable Economic Development
• Behavioural Insights to Address Retirement Savings Inadequacy.

Audit Oversight Board Annual Report 2022

During the year, the AOB inspected 56 audit engagements carried out by 52 individual auditors from 21 Audit Firms. On an annual basis, the AOB inspects the Major Audit Firms which collectively audit PLCs that represent 73.5% of the total number of PLCs and 95.3% of the total market capitalisations of PLCs in Malaysia. In 2022, the AOB also conducted targeted inspections aimed at responding to emerging risks in a timely manner.

Highlights of the AOB Report 2022 include:

• The AOB continues with its supervisory rigour by leveraging data analytics to identify key risks and specific areas of concern in the market. The number of audit firms inspected during the year increased by 50%.
• To strengthen the oversight role of Audit Committees (ACs), the AOB engaged with 973 ACs from 773 PLCs through its ‘Conversation with Audit Committees’ session. The AOB strongly believes effective oversight by strong, knowledgeable, and independent ACs of PLCs can enhance audit quality.
• In 2022, the AOB engaged with 84 senior partners of AOB-registered audit firms to understand the challenges faced by the profession and ensure that timely regulatory measures are put in place to improve audit quality.
• To strengthen the audit profession’s capabilities, the AOB and the Malaysian Institute of Certified Public Accountants (MICPA) held workshops to assist audit firms with the implementation of the International Standards on Quality Management, which became effective on 15 December 2022. These workshops provided practical examples of how audit firms should design their quality management systems based on the nature and circumstances of the firm and the engagements they perform.
• During the year, the AOB took six enforcement actions against auditors for breaching the relevant auditing and ethical standards. The actions included prohibitions and monetary penalties totaling RM383,500.

The AOB’s enforcement actions are subjected to Judicial Reviews by the auditors and the AOB has managed to successfully defend its actions in the Courts thus far. During the year, the Federal Court unanimously ruled in favour of the SC and the AOB in respect of a Judicial Review initiated by aggrieved auditors. The decision further reinforces the robustness of the AOB’s enforcement framework.

Capital Market Stability Review 2022

The CMSR, which outlines overall risk assessments on various components of the Malaysian capital market, revealed that, while the domestic market continued to be affected by the confluence of global and local factors, it was able to operate in a fair and orderly manner, with no systemic stability concerns observed.

Key observations from the report include:

• Domestic equity market was impacted by global volatility which affected market sentiment amid healthy local retail and foreign investor participation.
• Liquidity in equities continued to be supported by both local and foreign investors.
• Corporate bond default rate remained low.
• Fund managers had in place robust liquidity risk management processes to ensure sufficient liquidity to manage potential increase in redemption.
• For PLCs, most sectors recorded higher earnings in 2022
• In the digital asset space, average trading value has declined and domestic digital assets remain small compared to the equity market.

Moving Forward

Dato’ Seri Dr. Awang Adek said some of the areas of focus in 2023 include regulatory reforms, enhancing the fundraising ecosystem, advancement of the ESG agenda, facilitation of technology adoption and improving of corporate governance.

The SC will also prioritise sustainability and talent development to ensure the capital market continues to contribute to broader social and environmental goals.

“As we look towards the future, the SC remains committed to pursuing initiatives that will further strengthen Malaysia’s capital market, and enhance its role as a catalyst for economic growth and development,” he said.

To view and download these reports, please visit:
1) SC Annual Report 2022
2) AOB Annual Report 2022
3) Capital Market Stability Review 2022

About the Securities Commission Malaysia

The Securities Commission Malaysia (SC), a statutory body reporting to the Minister of Finance, was established under the Securities Commission Malaysia Act 1993. It is the sole regulatory agency for the regulation and development of capital markets. The SC has direct responsibility for supervising and monitoring the activities of market institutions, including the exchanges and clearing houses, and regulating all persons licensed under the Capital Markets and Services Act 2007. More information about the SC is available on its website at www.sc.com.my. Follow the SC on twitter at @SecComMy for more updates.