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The Effect of COVID-19 on the Capital Market

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The Impact of COVID-19 on Corporations and Corporate Law in Malaysia

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Abstract

This chapter provides an analysis of the effect of the COVID-19 pandemic on the capital market. It focuses on the efforts taken by the government to alleviate some of the challenges faced by public listed companies due to the pandemic and highlights some of the future trends that are beginning to emerge. In particular, participants in the capital market, both listed companies and investors have gravitated towards technology in addressing some of the difficulties posed by the movement control restrictions which were put into place in order to slow down the spread of the disease. A focus area for the government has been in responding to the challenges faced by small and medium sized businesses who have been particularly hard hit during this period. An analysis has also been carried out on the sectors which have been more severely impacted as a result of the pandemic. At the same time there have been certain businesses that have seen unprecedented growth, such as face mask and glove producers and this has been set out in this chapter. The period of financial upheaval oftentimes provides fertile ground in terms of opportunities and incentives for financial fraud. The writer explores this area given the financial pressures faced not only by companies but by individuals during the pandemic. Some examples of investment scams and financial fraud have been highlighted.

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Notes

  1. 1.

    A pandemic is generally understood to mean a disease that spreads across many countries and many continents around the world.

  2. 2.

    The disease is relatively constant in a population with largely predictable patterns.

  3. 3.

    CovidNow. https://covidnow.moh.gov.my/.

  4. 4.

    Securities Commission Capital Market Masterplan 3, page 34.

  5. 5.

    World Economic Outlook by IMF (October 2021) https://www.imf.org/en/Publications/WEO/Issues/2021/10/12/world-economic-outlook-october-2021.

  6. 6.

    Bank Negara Malaysia Annual Report 2020, Governor’s message.

  7. 7.

    Bank Negara Malaysia, Annual Report (Kuala Lumpur: Bank Negara Malaysia, 2020) 8.

  8. 8.

    theedgemarkets.com September 9, 2021.

  9. 9.

    Bottom 40%, middle 40% and top 20% respectively.

  10. 10.

    Organisation for Economic Co-operation and Development, “The Future of Corporate Governance in Capital Markets Following the COVID-19 crisis,” https://www.oecd.org/corporate/the-future-of-corporate-governance-in-capital-markets-following-the-covid-19-crisis-efb2013c-en.htm.

  11. 11.

    Ibid at Chap. 3, paragraph 3.2.4.

  12. 12.

    Securities Commission Malaysia, Annual Report (Kuala Lumpur: Securities Commission Malaysia, 2020), p.32.

  13. 13.

    Companies that have been classified as a PN17/GN3 company, cash companies as set out in para 8.03 of the Main Market Listing Requirements and ACE Market Listing Requirements and companies with an inadequate level of operations as set out in para 8.03A of the Main Market Listing Requirements and ACE Market Listing Requirements.

  14. 14.

    Companies (Exemption) (No. 2) Order 2020 (“Exemption Order”) gazetted on April 22, 2020.

  15. 15.

    Gazette Notification No. 21841.

  16. 16.

    As at October 30, 2021.

  17. 17.

    See paragraph 8.04 of Main Market Listing Requirements of Bursa Malaysia.

  18. 18.

    Under paragraph 8.04 and PN17 of the Main Market Listing Requirements.

  19. 19.

    https://www.sc.com.my/api/documentms/download.ashx?id=c5fbbbcd-3ab0-40ce-a22b-e8bb1d1fe0a8.

  20. 20.

    Ibid at p.31.

  21. 21.

    Securities Commission Malaysia, Annual Report (Kuala Lumpur: Securities Commission of Malaysia, 2020), p.30.

  22. 22.

    The study involved 29 listed issuers, which conducted fully virtual general meetings during the first movement control order and conditional movement control order period (April 18, to June 2020). A total of 309 individual shareholders responded to the survey.

  23. 23.

    Effective April 28, 2021.

  24. 24.

    Malaysian Code on Corporate Governance, April 28, 2021.

  25. 25.

    Securities Commission Malaysia, “Update On Flexibilities in Complying With Take-Over Offer Requirements under Capital Markets And Services Act 2007 and Rules On Take-Overs, Mergers And Compulsory Acquisitions, October 4, 2021. https://www.sc.com.my/covid-19.

  26. 26.

    Ng Zhu Hann. “Is Shortselling a Fair Game”, The Star, October 9, 2021.

  27. 27.

    SC media release dated June 26, 2020.

  28. 28.

    SC media release dated August 26, 2021.

  29. 29.

    SC media release dated April 28, 2020. https://www.sc.com.my/resources/media/media-release/sc-and-bursa-extend-temporary-short-selling-suspension-amid-covid-19-volatility.

  30. 30.

    Luca Enriques, and Marco Pagano, “Emergency Measures for Equity Trading: The Case Against Short-Selling Bans and Stock Exchange Shutdowns.” http://ssrn.com/abstract_id=03598151.

  31. 31.

    Jagdev Singh Sidhu. “Short Sightedness in Short Selling Ban”, The Star, February 27, 2021.

  32. 32.

    Financial Conduct Authority, “Statement on UK Markets,” March 23, 2020.

  33. 33.

    RM26.60 on July 28, 2020. See also “Top Glove Share Price Rises New Record,” The Edge, https://www.theedgemarkets.com/article/top-glove-share-price-rises-new-record-high-rm2660.

  34. 34.

    Top Glove Corporation Bhd. Annual Report 2020 at p. 40.

  35. 35.

    Zunaira Saieed, “Hotel Industry’s Defining Moments”, The Star, July 24, 2021.

  36. 36.

    Airasia X Bhd v BOC Aviation Ltd & Ors [2021] MLJU 189.

  37. 37.

    “AirAsia X Proposes Paying 0.5% of US$8.1b Debt Owed to Creditors”, The Star, October 18, 2021.

  38. 38.

    Thomas, Huong. “All eyes on recovery stocks”, The Star October 12, 2021.

  39. 39.

    “Stock Investors Fret About Supply Chain Woes,” Starbiz, October 12, 2021.

  40. 40.

    “Tech Mania Amid Global Chip Shortage,” The Edge Weekly, February 1, 2021.

  41. 41.

    MSME sector suffered RM40.7b losses in 2020, Entrepreneur Development and Cooperatives Minister Datuk Seri Dr Wan Junaidi Tuanku Jaafar quoted in Malaysian Reserve, July 29, 2021.

  42. 42.

    Bank Negara Malaysia, Annual Report (Kuala Lumpur: Bank Negara Malaysia, 2020), 30.

  43. 43.

    Defined by the Malaysian Trade Development Corporation (MATRADE) as manufacturing sector enterprises with an annual revenue of RM50 million to RM500 million and services sector enterprises with an annual revenue of RM20 million to RM200 million. See Adeline Paul Raj, ‘Mid-tier Companies’ Funding Increasingly in Focus,” The Edge Weekly, October 4, 2021.

  44. 44.

    Paragraph 13.19 Guidelines on Recognized Markets.

  45. 45.

    Adeline Paul Raj, “Mid-tier Companies’ Funding Needs Increasingly in Focus”. The Edge, October 4, 2021.

  46. 46.

    Securities Commission Malaysia, “SC Announces Series of Capital Market Measures To Support Businesses,” April 16, 2020.

  47. 47.

    Securities Commission Malaysia, Annual Report (Kuala Lumpur: Securities Commission Malaysia, 2020) 80.

  48. 48.

    “Coronavirus Pandemic is a Perfect Storm for Fraud,” Association of Certified Fraud Examiners, March 31, 2020 https://www.acfe.com/press-release.aspx?id=4295010491.

  49. 49.

    https://corporatefinanceinstitute.com/resources/knowledge/accounting/fraud-triangle/.

  50. 50.

    Securities Commission’s AOB Emphasises the Need for High Quality Audit in Light of COVID-19, SC Press release April 7, 2020.

  51. 51.

    “COVID-19 Operating in the ‘New Normal’—A Backdoor to Increased Fraud Risk?” Deloitte. https://www2.deloitte.com/ch/en/pages/financial-advisory/articles/covid-19-operating-in-the-new-normal-fraud-risk.html.

  52. 52.

    Jay itzgerald. “Why White-Collar Crime Spiked in America After 9/11”. https://hbswk.hbs.edu/item/white-collar-crime-enforcement.

  53. 53.

    “Report to the Nations, 2020, Global Study on Occupational Fraud and Abuse,” (Association of Certified Fraud Examiners). https://acfepublic.s3-us-west-2.amazonaws.com/2020-Report-to-the-Nations.pdf.

  54. 54.

    “COVID-19 Related Scams,” September 13, 2021, (Financial Markets Authority). https://www.fma.govt.nz/investors/scams/covid-19-related-scams.

  55. 55.

    “Virtual Investsmart® Fest: SC Aims to Enhance Investment Literacy,” Securities Commission Malaysia, October 8, 2021.

  56. 56.

    Securities Commission Malaysia, Annual Report (Kuala Lumpur: Securities Commission Malaysia, 2020), 63.

  57. 57.

    “Beware of Scams During COVID-19 Crisis”, Securities Commission Malaysia. https://www.sc.com.my/covid-19/scam.

  58. 58.

    https://covidnow.moh.gov.my/vaccinations/.

  59. 59.

    Official portal of Ministry of Finance Malaysia, https://www.mof.gov.my/en/news/press-release/malaysia-s-2q-2021-gdp-grows-by-16-1-economy-expected-to-continue-on-recovery-path.

  60. 60.

    The Statistics Department, quoted in The Star, October 13, 2021.

  61. 61.

    Anthony Dass. Chief Economist and Head of AmBank Research. “Urgency to Address Rising Cost of Living”, The Star, October 11, 2021.

References

  1. Association of Certified Fraud Examiners. See ACFE Press Release ‘Coronavirus pandemic is a perfect storm for Fraud’, March 31, 2020 https://www.acfe.com/press-release.aspx?id=4295010491.

  2. Bank Negara Malaysia Annual Report 2020, Governor’s message.

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  4. https://covidnow.moh.gov.my/vaccinations/.

  5. Cover Story: Tech mania amid global chip shortage, the Edge Weekly, February 1, 2021.

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  8. COVID-19 related scams, 13 September 2021, Financial Markets Authority https://www.fma.govt.nz/investors/scams/covid-19-related-scams.

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Author information

Authors and Affiliations

  1. Christopher & Lee Ong, Kuala Lumpur, Malaysia

    Shanti Geoffrey

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  1. Shanti Geoffrey
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Correspondence to Shanti Geoffrey .

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  1. Department of Business Law and Taxation, Monash University Malaysia, Bandar Sunway, Selangor, Malaysia

    Loganathan Krishnan

  2. Faculty of Business and Economics, University of Malaya, Kuala Lumpur, Malaysia

    Wai Meng Chan

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Geoffrey, S. (2022). The Effect of COVID-19 on the Capital Market. In: Krishnan, L., Chan, W.M. (eds) The Impact of COVID-19 on Corporations and Corporate Law in Malaysia. Springer, Singapore. https://doi.org/10.1007/978-981-19-5519-8_8

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  • DOI: https://doi.org/10.1007/978-981-19-5519-8_8

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