KUALA LUMPUR (March 25): Malaysian investment funds remain resilient to liquidity shock as their existing liquidity profile is enough to weather sustained large redemptions, according to the Securities Commission (SC).
Stress test results showed that investment funds would need to liquidate an aggregate of 44.58% of net asset value (NAV) under “extreme scenario” to satisfy redemption pressures, the SC said in its Capital Market Stability Review 2023 released on Monday. Failure to meet the 10% liquidity buffer assumption would indicate that a particular fund is illiquid, the SC noted.
"Utilisation of liquidity buffers remained unlikely under all scenarios, demonstrating ample liquidity in the existing portfolio structure,” the SC stated. “This affirms the investment funds' resilience to overcome potential redemption shocks amid deteriorating asset prices.”
The stress test was conducted on a total of 1,098 investment funds with an aggregate NAV of RM567.91 billion as at Sept 29, 2023.
The funds’ portfolios are mostly made up of equities at 51.91%, followed by cash and cash equivalents at 21.67%, corporate bonds and sukuk at 13.93% and government securities at 4.03%. Meanwhile, collective investment schemes, structured products, derivative instruments and other assets accounted for the remaining 8.13% of assets.
“In particular, cash and cash equivalents, domestic equities, and government securities are considered key components of the overall asset allocation as they collectively command more than half of investment funds’ total NAV and represent the highest utilisation under the stress test’s liquidation strategy,” it remarked.
The SC further noted that sell-down was mostly concentrated in highly liquid assets. Cash and cash equivalents were liquidated at 60.75% of their total holdings while 66.8% of government securities were liquidated.
Liquidation of equities was moderate at 45.97%, while that of collective investment schemes stood at 27.42%. Corporate bonds or sukuk were liquidated at 18.72% relative to their total holdings.