Malaysia rightly deserves its reputation as the most advanced market in Asia outside Hong Kong and Singapore. It is a more popular source of funding than bond markets elsewhere in Asia; it has established itself as a centre for Islamic finance in the region; it has a well developed asset management industry; and it has proved itself to be perhaps the most open to foreign investors and issuers.
"If you look at the volume of corporate issuance as a percentage of gross domestic product, it's about 70%. And we have Malaysian government securities out to 20 years, where China struggles for seven years," says Seohan Soo, head of debt capital markets at Am Merchant Bank in Kuala Lumpur.
Indeed, Malaysia's corporate debt to GDP percentage compares well with Indonesia's 2.31%, Thailand's 23.58%, Singapore's 31.29% or Hong Kong's 38.85% — all of which are 2005 figures.
Furthermore, its total volume of outstanding bonds is bigger than any Asian country except Japan, China and Korea.
But Malaysia also offers something that no other Asian market really has, says Baljeet Kaur Grewal, chief economist and head of fixed income research at Aseambankers in Kuala Lumpur.
"The capital market is carving out a niche for itself as an Islamic financing hub," he says. "We expect there to be around M$40bn of corporate bond issuance this year and, of this, more than 80% is likely to be Islamic. We are attracting a lot of Middle Eastern money, for which Malaysia is providing a first gateway to Asia through its open Islamic market."
The Malaysian market has continued to play host to foreign borrowers this year, with the Asian Development Bank returning and KfW making its debut. Indeed, the ADB established a M$3.8bn ($1.03bn) 15 year MTN programme and managed to sell 20% of the M$500m ($137m) bond to foreign investors, via Am Merchant.
But bankers say there are clear ways in which the market could develop further. Thomas Meow, head of debt capital markets at Commerce International Merchant Bankers in Kuala Lumpur points out that central bank restrictions on using bond issues to fund acquisitions do not help and that there is a lack of demand for mid-cap credits.
Furthermore, he says, there still need to be more long term investors to avoid such heavy concentration with the state-owned Employee's Provident Fund, which owns an estimated M$40bn-M$50bn of bonds.
"Diversification would be good for us," he says. "Too much money flowing to one investor is not good — its policy and strategy affect the entire market. It has been suggested that more private pension funds could work alongside the EPF."