Prime Minister Abdullah Badawi has announced that the liberalisation of Malaysia's capital market would be the biggest challenge to the country's economic policies.

Abdullah has to open the capital market to attract funds into Malaysia to spur the economy. This is also necessary to comply with the deadline set by the WTO. The government, through the 2005 Budget tabled recently, has therefore decided to:

allow up to five major stockbrokers to operate in Malaysia;

allow up to five leading global fund managers to operate in Malaysia;

allow 100 percent foreign ownership in futures broking companies;

allow local stockbroking companies which have merged with at least one other stockbroking company to establish four additional branches or electronic access facilities for permitted activities;

abolish the limit on the number of foreign dealer representatives; and

allow the Employees Provident Fund (EPF) to increase the size of its funds placed with local fund management companies, including non-bank companies.

Presently, EPF placement with local fund management companies is about RM6 billion and this amount will be doubled to RM12 billion within three years.

I would say that the direct presence of foreign global players may increase trading and speculative activities on the Bursa Saham Malaysia. Indeed, they have already formed smart partnership with local securities companies.

But the foreign players will only bring in 'hot money' (very short-term funds) into the market for speculative purposes which will not create any significant impact on capital formation to spur or sustain the Malaysian economy.

The government's liberalisation of the capital market will also cause at least RM6 billion of EPF fund to be managed by these foreign managers. If EPF funds were to be used for speculative purposes, it would be a nightmare for local small investors.

It therefore would be important to stop foreign fund managers from abusing the EPF funds on the Bursa Saham Malaysia.

Towards this, the government needs to reclaim the lost confidence of domestic investors who form the fundamental core of the local stock exchange. Malaysian investor confidence is crucial towards creating a vibrant domestic capital market.

The presence of foreign stockbrokers, too, will not have any significant positive impact on the Malaysia economy as the former's investment in Malaysia are only short term and will only promote speculation.

It is safer to keep EPF funds in Malaysia where any mismanagement of the funds would be accountable under Malaysian jurisdiction. The BMF scandal would repeat itself if we allow foreign fund manager to manipulate our old-age savings.