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This article first appeared in Forum, The Edge Malaysia Weekly on July 20, 2020 - July 26, 2020

Despite improved investor sentiment and the recovery in asset prices, the full impact of the Covid-19 pandemic on our economy and markets remains unknown. This has prompted discussions on the notable disconnect between

asset prices and the real economy, much like the last financial crisis of 2008/09. Still, this time it is different, not least because the stakes involved have grown significantly and permeates beyond the financial markets.

The pandemic is not the only disruptive change facing global society in this lifetime. There were multiple pre-existing complex and structural challenges — from the impact of Industrial Revolution 4.0 on our businesses and people to climate change and widening inequalities — underlying shifts that were already shaping the economic and market landscape. Nonetheless, the deep and sharp impact of the pandemic has now forced us to confront these multifaceted challenges at the same time and brought to the fore some underlying vulnerabilities.

While it remains to be seen how the new normal would take form post-pandemic, the uncertainty alone has thrusted us into a rare moment of transition that allows us a rethink of the fundamentals of our systems and to uncover the opportunities that almost always present themselves in a crisis.

At the Institute for Capital Market Research (ICMR), we observed the unfolding of Covid-19 from various angles to distil potential areas that present opportunities for greater capital market involvement in developing a more resilient, inclusive and sustainable economy moving forward.

Addressing spillover effects on long-term savings

The short-term measures announced by the government — such as one-off cash transfers and loan moratoriums — are aimed at providing indivi-

duals with immediate financial relief, but they have also underscored the bigger issue of the dependency of some Malaysians on their retirement fund as primary savings for hardship and emergency

situations. A study by Bank Negara Malaysia found that 52% of Malaysians would face difficulty in raising RM1,000 immediately in the event of an emergency (this number goes up to 86% for B40 households).

Lack of financial buffers is perilous during normal times, even more so during times of crisis. The outbreak of Covid-19 and its resulting economic hiatus underpins the need for emergency buffers, both for households and corporate. It also creates challenges for policymakers on multiple fronts, not least because of the trade-offs in the longer term, but also because the issue of lack of savings has persisted for a long time, and will only be exacerbated by an ageing population, the growing presence of the gig economy and ongoing technological shifts that risk further job displacements.

The government’s announcement under the National Economic Recovery Plan (Penjana) of a RM50 million matching grant for gig platforms that help workers contribute to the Employee Provident Fund’s i-Saraan scheme or Perkeso’s employment injury scheme, as well as the recent reactivation of the Malaysian Social Protection Council (MySPC), are clear signals that these are structural challenges that need to be dealt.

The need to address the issues of financial safety nets under a fully integrated and coordinated system is especially pertinent as the future of work rapidly evolves, as was highlighted in the World Bank June 2020 Malaysia Economic Monitor.

Further policy considerations include improving access to retirement schemes while narrowing the retirement gaps for self-employed and informal workers, leveraging big data and better integration of private retirement schemes as part of the overall pension systems.

There is also a need to further understand the psychological impact of the Covid-19 crisis and the implications on consumer and investor behaviour in the future. This is the time to consider how we can utilise more behavioural insights for more informed policymaking and to help investors make better decisions.

Investing in technology, people and a collaborative model

Beyond long-term retirement savings, structural gaps also exist in fundamental areas that support our capital market’s critical intermediary functions. The Penjana initiatives’ focus on accelerating digitalisation of the economy, along with the reskilling and upskilling programmes for our talent, is aligned with the long-term challenges faced by the financial sector, as emerging technologies will be key influencers of the new financial landscape, and augmenting workforce skillsets to complement these emerging technologies will be a key imperative.

As the digital financial landscape continues to evolve rapidly, the demand for more holistic and seamless digital financial solutions, such as robo-advisory with micro-investing and mobile payment systems, will become pervasive. Yet, based on a proprietary survey of all licensed asset managers in Malaysia conducted by ICMR last year, although 89% envisaged that technology would highly impact their business growth over the next 12 months, only 9% indicated that they would be exploring the use of artificial intelligence (AI) in their current applications.

In line with the Penjana programme to encourage an online-centric shift through public-private matching grants of RM140 million, an “industry partnership incentive” could be introduced as a co-investment structure to accelerate greater digital adoption between financial institutions, fintechs and other start-ups. In parallel, a “research and training incentive programme” for specific research institutions or smart partnerships can accelerate applications of AI and data analytics in the financial sector and in keeping with global developments.

Equally, if not more, important, supporting digital innovation initiatives is the framework to ensure they are aligned with augmenting existing and new talent skillsets in the financial sector.

Today’s shortages of human capital are compounded by a competitive environment, coupled with a consistent skills gap, as well as the brain drain of Malaysia’s talent pool.

Building on Penjana’s reskilling and upskilling programmes, a “subsidy-based re-skilling programme” can be augmented with a “talent-sharing platform” to support the transition of displaced workers from other sectors to be reskilled for talent needs in the financial sector. Underlying these initiatives is a need for industry leaders to tap a wider talent ecosystem with a more multi-disciplinary approach, as talent development programmes for the new financial landscape will become more holistic. Nonetheless, reskilling reforms will require a long-term investment.

Finally, Covid-19 has revealed how the global economy has become more substantially interconnected, exposing our vulnerabilities and critical dependencies on integrated supply chain channels, trade activities, commodity markets, financial markets and capital flows. It has brought to the fore that the only way to tackle complex challenges is by sharing information and data, resources and expertise through a stronger collaborative model between all stakeholders.

Establishing a regional communication platform will not only strengthen the level of coordination for collective action but also facilitate greater openness to data and knowledge-sharing and mobilise the regional business community for emergency situations such as the Covid-19 pandemic. The platform could also be useful for other mid- to long-term regional collaboration initiatives.

The Covid-19 pandemic is a defining event that is reshaping our thinking about the future. If it can catalyse us to take the long view, to start putting in the building blocks needed to build the structural resilience to absorb another potential shock and to transform our future into a more inclusive and sustainable one, then this crisis could turn out to be a pivotal point to the new normal.

Datin Azleen Osman Rani is director of the Institute for Capital Market Research. To learn more about ICMR and the report, please visit here.

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