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Brief IDEAS No 21 – GLIC Footprint in the Private Sector: Policy Dilemma

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• Government-linked investment companies (GLICs) have higher presence in policy-driven industries such as Telecommunication and Media, Transport and Logistics, as well as Utilities. High equity ownership in the Finance industry is also particularly concerning as most GLICs have controlling stakes in at least one bank.

• High degree of GLIC footprint in these industries poses concentration risk to depositors since their savings through these institutions have investment exposure to the same choice of companies. For example, in Telecommunications and Media, the GLICs are majority shareholders in Axiata, Telekom Malaysia and Time Dotcom who are competitors.

• GLICs’ relatively strong presence in the Finance industry, particularly in banks, raises questions on the allocative efficiency and competitiveness of the financial market. High level of GLIC ownerships may also create “home field advantage” for Malaysian banks over foreign-owned entrants, but it is unclear whether this same advantage could also be reversed when the same banks compete abroad.

• The concentration risk facing the GLICs may necessitate an increase in investment exposure abroad. But, given the market stabilization factor of GLICs, it is possible that a portfolio reallocation towards global markets may increase volatility in the local capital market and the economy in general.

• One important debate to have moving forward is the need for a clear separation between ownership and regulation of GLICs. There is also a growing economic price to pay for GLCs to continue serving as a vehicle to pursue socio-economic policies as companies become more competitive through specialisation in the context of global and regional supply chains.

2020-04-27T22:39:19+00:00 27th April 2020|Policy IDEAS|Comments Off on Brief IDEAS No 21 – GLIC Footprint in the Private Sector: Policy Dilemma