Category: Investments

As we navigate these turbulent times of uncertainty, we are constantly under pressure to make investment decisions and to look for investment strategies or styles that can enhance returns for our long-term investment.

As we are advised to brace for the impact of increasing market volatility, inflation risks and interest rates while investing, we are dissuaded from investing based on rumours when making investment decisions.

We are always cautioned to conduct more analyses with facts after verifying from trusted sources such as Bursa Malaysia, Bank Negara Malaysia and Securities Industry Development Corporation (SIDC) before investing.

In the past, we may pin the blame on rumour mongers and the lack of information for our inability to invest well. But with more information available now, are we more prolific in making informed decisions that produce better investment outcomes?

While some of us are instilled with knowledge for investing, some still perceive investing as a daunting task. Inevitably, many of us are still prone to making suboptimal decisions despite religiously adhering to tips from the pundits.

Read: Six Golden Rules In Getting Favorable Returns And Growth, When Investing In Unit Trusts

While Is It Hard To Make The Right Investment Decisions?

This is because making the right investment decisions also becomes trickier with an ever-increasing assortment of financial products to suit our investment palates.

We are also reminded by the investment community to keep our emotions in check when investing. This is because emotions can lead to perverse and suboptimal decisions in investing.

We feel lousy and we may blame it on luck to make us feel better while some of us become mentally depressed when things turn out badly. Some of us cringe at making investment decisions and shy away from financial products after encountering some painful experiences in the past.

Thus, can we ignore our emotions when investing? If not, do we need robo-advisory services or digital asset managers proclaiming on investing without emotions to help us in making the right investment decisions?

Read: Investing And ESG

Emotions Affecting Investment Decisions

On the other hand, according to research, not exhibiting the appropriate emotions could impair our ability in making investment decisions.

So, why are we so hard on ourselves? After all, we are emotional creatures. We can’t possibly ignore our emotions when investing. I suppose if we could understand our emotions and what drives our emotions in the process of decision-making, we could be less subjected to unhealthy thoughts.

As decision-making is a complex process, we tend to use mental shortcuts termed as ‘heuristics’ by psychologists to solve problems instead.

According to psychologists, we simply make judgements and decisions by consulting our emotions. We ask ourselves: “Do we like it? Do we hate it? How strongly do we feel about it?”

We form opinions quickly, make judgements and take risks as expressions of our feelings on the basis of mental images without realising why we are doing so.

Researchers suggest that our brains exhibit tardiness in adjusting our impression once our mind has been framed. Festinger posits the ‘theory of cognitive dissonance’ and encapsulates that we will try to look for information that reaffirms our initial opinions so that the opinions we form earlier do not contradict the information we receive later. This somewhat explains ‘confirmation bias’ and ‘first impression bias’.

Read: Investment Risk Management With 6 Simple Ways

This could also explain why we may fall prey to financial scams. Scammers who have a positive image and are good at manipulating our emotions with words that mesmerize us are more likely to gain our trust.

To avoid becoming an easy target by malicious people, we may need to think like scammers and beat them at their own game. Of course, we are not advocating that we act like scammers but playing defence all the time in their game can be tiring.

We need to play like a striker as the situation warrants it or find ways to change the playing field when dealing with scammers. In short, as we could not possibly suppress or ignore our feelings and emotions, we have to try to manage our emotions.

Numerous books and articles offer tips that we could adopt to improve and practise our emotional intelligence, so we can make better investment decisions.

Our decisions can be also easily affected by our moods. The effect of mood on decisions is well documented in journal articles. When we are in a bad mood, we tend to be more pessimistic about the future.

We are more likely to invest in risky assets such as equity, and conduct less critical analyses when we are in a good mood, which predisposes us to underreact to negative information about our investments. Besides this, there are many interesting journals and articles on weather effects on stock returns in the West.

For instance, Hirshleifer and Shumway in their journal article titled: “Good Day Sunshine: Stock Returns and the Weather” have unearthed that our financial decisions may be affected by sunshine. Sampling 48 developed and emerging countries, Yuan, Zheng and Zhu in their studies titled “Are Investors Moon Struck? – Lunar Phases and Stock Returns”, advanced the notion that the performance of stock exchanges is significantly higher during the new moon.

Thus, unless we are emotionally intelligent, we may not be able to make wise decisions even if we use digital asset managers for investing. But again, do you think we will be happier if we don’t use heuristics but instead utilise and filter reams of information before arriving at a conclusion?

Researchers contend that conducting too many analyses may also lead to ‘analysis or information paralysis’, a situation where we are unable to make investment decisions or reach a conclusion due to information overload.

Read: Where To Invest In 2023: Amidst The Recession And General Election

About the Author

Dr. Audrey Lim Li Chin is a lecturer and a researcher at Multimedia University (MMU) Melaka. She teaches International Finance and Derivatives. She is particularly interested in retirement planning, mental health, Fintech especially in Blockchain and data analytics. She is also a Certified Financial Planner, (CFP) and is currently pursuing Chartered Financial Analyst (CFA) certification.

I get questions dealing with investors from different backgrounds. Some of them are very experienced investors and traders. These investors sometimes have questions especially when the markets are driving them nuts. Let’s take a closer look at the year 2022 so far, and the market outlook for 2023.

So far this year, the markets around the world have certainly affected a lot of people ranging everyone’s emotions from greed to fear.

The old market saying is that when everybody is thinking the same thing, then nobody is thinking at all. For this issue, instead of the usual format, I will answer some ‘difficult’ questions raised by some of my investors in our recent meetings.

The questions may be simple, but the answers are complex. However, I was surprised that nobody asked me about the market outlook for 2023 for gold, since the yellow metal has since morphed into a holy object of worship.

Read: Six Golden Rules In Getting Favorable Returns And Growth, When Investing In Unit Trusts

Year 2022 So Far And The Market Outlook For 2023

Q1. Are you still bullish on China and its market outlook for 2023?

With boots on the ground in Shanghai and Hong Kong, I remain a long-term bull on the Chinese consumer sector. While some foreign investors remain skeptical, there are strong long-term reasons for investors to allocate to China.

Local research and insights matter more than macro news flows for anyone investing in the Chinese markets. The Chinese markets have corrected to a point that valuations mean solid companies are already priced for the worst-case scenario.

Therefore, the potential for good risk-adjusted returns are promising in the coming years.

Q2. I’m very concerned about the shock of inflation putting more pressure on the markets. What is your view on inflation and the market outlook for 2023?

Wasn’t Ukraine or another nuclear war one of our greatest concerns a couple of months ago? From the market perspective, the worst part of the inflation is behind us. From a poorer consumer perspective, inflation or the rising cost of living will continue to be a problem in the coming years.

Read: 6 Ways To Deal With Inflation

Q3. What is your view on the global economy and market outlook for 2023?

I do not care for the official definition of a recession. The current economic cycle is unlike anything we have seen before in that it has absorbed the impact of a pandemic, followed by a war in Ukraine. Economic data has been distorted for months. If you look at the history, central banks are always too late to engage their efforts and therefore, they very often have to go too far in their response.

With the backing of more than 400 PhD economists, the Fed’s Chairman Powell, one of the most powerful people on the planet, keeps aggressively tightening an economy that is already showing a lot of weakness with inflation peaking, so economic risk is surging going into 2023.

Q4. Do you think Powell will want to destroy the US economy in order to save it?

He will back off. If you believe in the destruction theory, pack your bags and head for the hills with canned food and ammo. The last thing Powell wants is to be blamed for a global financial accident before Christmas. Oops… he already blew up Great Britain and he probably has more phone calls from other central bankers.

On this note, The Bank of England is in a mess and it looks like the UK is an emerging market now. Politically, it is out of the frying pan and into the fire for the UK government.

Q5. Can you tell me more about the volatile stock market and its market outlook for 2023?

Please leave your emotions aside. It is foolish to try and guess the short-term conditions that are so volatile and unpredictable. The long-term bull market is still alive and kicking despite the stomach-churning volatility we have experienced so far this year.

The human mind always projects the recent past onto the future thinking that bad times will never end. Prices could go a lot higher and longer than people think in the coming months and years.

What happens after this long-term bull market ends and how will we deal with that later?

At one stage, the sentiment was so bad especially during the Covid-19 crash. Well, the stock market is a forward-looking mechanism. Extreme volatile markets shake out the weak hands and give long-term investors a strategic mindset and a chance to buy at lower valuations to multiply their wealth.

Q6. 2022 has been unusually volatile for US equities. A renowned economist predicted the market outlook for 2023, and a stock market crash is expected in the coming months. Do you agree with him?

No crash or meltdown. The stock market and the economy are very clearly two different things. What if the bear market is not over and I am wrong? As a mere mortal, I have been wrong many times in the past.

Legendary investor Peter Lynch reminds me that in our business, if you are good, you are right six times out of ten. You are never going to be right nine times out of ten. I do not put all my eggs in one basket.

Q7. What is your view on cryptocurrencies and its market outlook for 2023?

Grab a coffee and enjoy the wild ride. Sentiment can change on a dime and it is not a surprise that most institutional investors have concerns around the risk and volatility of the cryptoasset market.

However, it can further be seen empirically that a simple ‘buy-and-hold’ strategy with an allocation as small as 1% of an investor’s portfolio has resulted in an outperformance of more than 10% over the past seven years. I am a long-term bull and patience is a virtue.

Read: Stabilising The Unstable Stablecoins

Q8. You have been a US Dollar bull for a number of years now. What’s the market outlook for 2023 for US Dollar, are you still bullish?

The US Dollar’s strength has been fairly obvious in the last 12 months, so if anyone is shocked by this, it is probably time to go hands off on his or her finances and get professional help. Since May 2021, the US Dollar has risen 19% against the Euro, even reaching parity in recent weeks.

It has appreciated 20% against the Pound Sterling, and is up 28% against the Japanese Yen. The market outlook for 2023 is that I am still bullish, but the US Dollar is overbought at the current levels.

Read: Managing Currency Exposure In Your Portfolio

Q9. Where is the best place to put your money in the world today?

Drumroll please… and sorry to disappoint the doom and gloomers, but the US remains the best place for both safety of capital and future growth prospects.

Q10. Why have you been able to stay calm despite the chaos so far in 2022?

Those who joined the industry a few years ago are now learning that maybe their success or arrogance in the last few years had more to do with a rising tide lifting all ships and exposure to higher beta areas, than it did their investing acumen. Everyone is a rational investor when things are going higher every day.

I have seen multiple cycles and survived much worse than this and yet some ‘experts’ are terrified. Regular meditation gives me a sense of calm, peace and balance in my work and overall life.

Q11. What about the Russia- Ukriaine War?

I do not have anything to add as the war continues to drag on.

Q12. What about oil?

I am not the bear you are looking for. The spike in oil prices we have seen in spring and early summer has faded. Macro worries will continue to keep a ceiling on crude oil but the fundamentals have now set a solid floor.

OPEC has shown that it is willing to do what is needed to keep markets tight. At some point down, the price range will break to the upside given how constrained supplies will be going forward.

Q13. What is your advice for those who turn to cash as a source of diversification?

I have come across people who choose to hold significant amounts of cash. I can feel their pain. The supposedly conservative strategy of putting money in the bank is actually destroying your purchasing power at a rather alarming rate.

There are other investment opportunities which can help to meet their financial objectives. They just might have to look a little harder.

Well there you go with what’s been going on for the year 2022, and what the market outlook for 2023 is in store for us.

Read: Saving vs Investing, Should I Save Or Invest?

About the Author

YH Wong has over two decades of experience in the financial services industry. His clients include high net worth investors and boutique institutions such as family offices and investment partnerships in the region. He is currently a senior partner with Satori Consultancy Ltd, a financial services company regulated by the Mauritian Financial Services Commission. He can be reached at yhwong@satoriconsultancy.com.

A sukuk contract is simply defined as a debt arrangement agreed between the sukuk holders and sukuk issuer to engage in Shariah-compliant activities. Let’s look at how we can drive the development of ESG with sukuk.

But first, what are Shariah-compliant activities?

They are activities that are permissible as disclosed by the Shariah Advisory Council (SAC) of the Securities Commission Malaysia(SC). For example, this includes any activities that are not involved in gambling, prohibited entertainment, riba’-based transactions, tobacco, weapons, and others. When a sukuk holder invests in a sukuk, he basically has the ownership of the given assets and the sukuk is the certificate evidencing the ownership.

When sukuk holders have the ownership, it gives them the ‘financial rights’ (remember, it is a debt arrangement) stated in the terms and conditions of the sukuk. The sukuk holders are entitled to the returns generated with the underlying Shariah-compliant transactions structured and disclosed in sukuk contracts.

A sukuk contract consist of various transactions contracts which form a foundation and has different implications, such as profit sharing, leasing and sale and buyback. There are few structures commonly applied to name a few: ijarah, musharakah, mudharabah, murabahah and wakalah.

In terms of sukuk structures, features and participants there is generally a difference between the international and domestic sukuk markets hence the requirements and popularity of various sukuk financing structures also differs between the two markets. The hybrid structured sukuk is the most common structure issued representing 48% in 2021 by Sovereign Sukuk Issuers, followed by ijarah (31%) and wakalah (20%).

As far as the international sukuk market is concerned, sukuk wakalah has been the most popular structure for some time now. Malaysia on the other hand is popular with the commodity murabahah. Based on the International Islamic Financial Market 2022 Sukuk Report, sukuk issuances in the past ten years has been growing. As of 2021 the market stands at US$188.12 billion.

Throughout the past ten years, however, sukuk issuances were not in constant trajectory. The lowest decline was in 2015 due to a strategic move by Bank Negara Malaysia (BNM) to halt issuing short-term investment sukuk.

So how then we can drive the development of ESG with sukuk?

Read: The Islamic Sustainability Approach In ESG

Total Global Sukuk Issuances In USD Millions

The US$188.12 billion comprised of international sukuk issuances stood at US$49.43 billion whilst US$138.69 billion represents the domestic sukuk issued in respective countries. Malaysia issued 735 domestic sukuk issuances in 2021 totalling to US$61.045 million representing 44% of total domestic issuances globally.

Main factors for this improvement in sukuk issuances despite the global pandemic was due to continuation of economic stimulus measures implemented by respective countries coupled with rising commodity prices including oil (IIFM Sukuk 2022 Report).

Sukuk issuance had a stronger than usual start to the year, based on the considerable momentum it had built up in 2021. Total sukuk issuance reached a total of US$51.6 billion in Q1 2022, compared to US$43.4 billion issued in Q1 2021 (Source: Refinitiv).

Referring to Q4 2021 research by Moody’s, Malaysia and Saudi Arabia continued to dominate the sukuk issuance market with 37% and 29% of total issuances, respectively. However, in Q1 2022, a boost came from sukuk issued by Saudi-based entities, which amounted to US$17.9 billion, outpacing issuances from Malaysia (a market leader) for the first time. Sukuk issuance from Saudi Arabia nearly doubled from US$9.3 billion in Q1 2021.

The Saudi government ramped up issuances through its domestic sukuk programme despite higher oil prices that reached their highest level since the global financial crisis of 2008, amid rising demand for debt from highly rated issuers. The sovereign raised US$14 billion during Q1 2022, up from US$3.7 billion during the same period in 2021.

This included a US$7 billion in sukuk in March 2022, issued with the purpose of consolidating domestic public debt under the sukuk program.

Moody’s expects the outlook for sukuk issuance in 2022 to remain divergent. It is expected that the burst in issuance momentum will wind down over the rest of the year as the Gulf Countries Corporation’s (GCC) government funding needs may reduce in the short-term.

Refinitiv’s Sukuk Perceptions and Forecast Study 2022 also echoed Moody’s forecast stating “whilst the Global sukuk issuance reached US$100.9 billion in H1 2022, issuance momentum is slowing as oil prices are elevated and the Fed leads a global monetary tightening cycle which reduces government borrowing.”

Read: 4 Things That You Should Know About ESG In Malaysia

Driving The Development Of ESG With Sukuk

Nevertheless, just like what was stated in Moody’s and Refinitiv’s report, sukuk is safely being perceived as a viable source of financing for corporate and financial institutions. This includes general purpose requirements, capital adequacies, project financing, budgetary and fiscal requirements, and of liquidity management purposes. ESG with sukuk sure can get along nicely.

In addition, the integration of ESG considerations into investment mandates is also driving the development of green, sustainable and Social Responsibility Investment (SRI) purposes, which would be attractive to sukuk investors and ultimately embodies the true concept of maqasid al-Shariah. That’s how we can drive the development of ESG with sukuk.

Read: ESG Investing And The 3 Steps To Build An ESG Portfolio

About the Author

Established IFRAC Sdn Bhd in March 2022, Baizurah, a certified HRDC trainer has 15 years of Sukuk experience. Throughout her tenure in the financial industry, she was responsible for various dealings related to Debt and Islamic Capital Market, Project Financing and Financial Advisory. Her achievements include arranging the first aviation Sukuk Musyarakah, global Sukuk Ijarah and a pioneer in financial guarantee structures relating to the plantation and real estate industry.

The Securities Commission Malaysia’s (SC) Audit Oversight Board (AOB) has called for Audit Committees of public listed companies (PLCs) to create and maintain an environment that supports and upholds auditors’ independence and high audit quality to ensure that reliable audited financial information is made available to facilitate informed decision by users.

At a recent virtual dialogue series with 823 Audit Committee members from 723 PLCs, the AOB reminded that members of the Audit Committee are instrumental in setting the right tone for the company’s financial reporting process and enabling a close working relationship between the Audit Committee and the independent auditors. It further emphasised that effective oversight by strong, knowledgeable, and independent Audit Committees shall further enhance audit quality in the marketplace.

Recognising this, the AOB regularly engages with Audit Committees to ensure that they are adequately informed and kept abreast with the relevant information to effectively carry out their oversight responsibilities. This year’s dialogue series also saw the AOB sharing the result of its survey on ‘Transparency Reporting by Audit Firms’, which is based on the responses of 151 Audit Committee members.

Introduced in December 2019, the Transparency Reports are issued by certain registered audit firms who meet the mandatory reporting criteria as stipulated by the AOB. The Transparency Reports provide information on a firm’s legal and governance structure, measures taken by the firm to uphold audit quality and manage its risks, as well as
information on the firm’s measurement of audit quality indicators.

The AOB noted that while 89% of the survey respondents are aware of the requirement for audit firms to produce Transparency Reports, only 68% of the respondents have read the Transparency Reports.

The AOB strongly encourages Audit Committee members to read the reports in view that 94% of the survey respondents who have done so have found the information disclosed to be useful to facilitate a more effective selection and assessment towards appointment (including re-appointment) of the external auditors. For good corporate governance, the decision for the appointment or re-appointment of auditors shall be made by the Audit
Committees and not management.

The recently concluded dialogue series, held on 17 November and 6 December 2022, reflects the SC’s efforts to improve corporate governance in PLCs as well as strengthen the ecosystem for audit quality and increase investors’ confidence in the quality and reliability of audited financial statements.

It also provides a platform for Audit Committees to raise any issues with respect to their oversight function and to share good practices in supporting audit quality.

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.

About the Audit Oversight Board:

The Audit Oversight Board (AOB) is established under the Securities Commission Malaysia Act 1993 which came into force on 1 April 2010 to promote and develop an effective audit oversight framework and to promote confidence in the quality and reliability of audited financial statements in Malaysia. More information about the AOB is available at www.sc.com.my.

The Securities Commission Malaysia (SC) today unveiled the Principles-Based Sustainable and Responsible Investment Taxonomy for the Malaysian Capital Market (SRI Taxonomy) to help advance the nation’s climate and sustainability agenda.

The SRI Taxonomy provides universal guiding principles for the classification of economic activities that qualify for sustainable investment.

It aims to give clarity towards enabling proper and consistent identification and classification of various types of economic activities as well as the definition of sustainable investments. It also seeks to address concerns on the need to mitigate
and manage the risks of greenwashing.

“The global expansion of sustainable investments has created demand for additional clarity and assistance for market players in identifying economic activities that are aligned with environmental, social and sustainability objectives,” said the SC Chairman
Dato’ Seri Dr. Awang Adek Hussin.

“The SRI Taxonomy adopts a principles-based approach to enhance the standardisation and comparability of sustainable investment assets,” he said. “This was done after considering the state of readiness of the wider Malaysian capital
market, as the capital market constituents are at different maturity levels in their sustainability journey.”

Given Malaysia’s strong position in Islamic finance and the alignment of the underlying principles of Islamic finance with sustainability, particularly from the social and ethical investing perspectives, the SRI Taxonomy also includes a social component, in addition to the environmental component.

The development of the SRI Taxonomy was undertaken by the SC, in collaboration with the industry through an Industry Working Group (IWG). The IWG comprises the World Bank Group Inclusive Growth and Sustainable Finance Hub in Malaysia as the Lead Technical Expert, and representatives from Bursa Malaysia, asset and fund management companies, investment banks, asset owners and other sustainable finance specialists.

The World Bank Country Manager for Malaysia Yasuhiko Matsuda said, “We are grateful for this opportunity to have supported the SC in developing a framework to aid in unlocking capital for sustainable development priorities. This taxonomy can also assist other countries facing similar challenges in shifting or transitioning towards socially responsible investments and a just climate transition.”

The SC also issued a Public Response Paper today following the issuance of the Public Consultation Paper No.1/2021 on the Principles-Based Sustainable and Responsible Investment Taxonomy for the Malaysian Capital Market in December 2021.

Both the SRI Taxonomy and the Public Response Paper can be found at the SC website at https://www.sc.com.my/development/sri.

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.