Ladies and Gentlemen, Today's launching of the Citigroup Malaysian Government Securities Index and the Dow Jones-RHB Islamic Malaysia Index, marks another step forward in the development of Malaysia's capital markets. The importance of these two indices should not be underestimated. This initiative by the Citigroup and RHB and Dow Jones is an important contribution to the development of our domestic markets. With globalization, increased connectivity and rapid financial market integration, investors are no longer restricted to investing within their own domestic borders. Indeed the 'home bias' or tendency of investors to invest almost all their assets domestically, has been rapidly dissipating. Investors look abroad for enhanced returns and diversification opportunities. For more than a decade now, the pace of diversification across borders by pension and insurance funds, asset management companies, hedge funds and high net worth individuals has increased dramatically. A region that has emerged strongly in the international investors radar screen is the East Asian region. Strong, sustainable economic growth, rapid expansion in intra-regional trade and investment have led to a correspondingly accelerated pace of development of the capital markets and to an increase in the  BIS Review 49/2005  1  pace of financial liberalization and integration. In this environment, it becomes important to promote well-developed, deep and liquid capital markets. Today's launch of the Malaysian Government Securities index will assist investors who have increasingly been attracted to Malaysian fixed income securities as an important asset class.

Charles Dow himself chose these stocks, nine of them being railroad companies, the key growth industry at the time. Over time, he would revise the index as he saw appropriate to be reflective of ongoing market and industry developments. Ladies and Gentlemen, The construction and use of benchmark market indices today has undergone much advancement since then. Indeed, financial markets have undergone dramatic transformation. Economic, industry, and corporate expansion; the sophistication, proliferation and diversity of instruments; the expanding investment communities are all factors that have led to an increase in the number of benchmark indices and their greater use. Benchmark committees deliberate over the construction of the index and determine the rules of the benchmark. Investors need the benchmark indices to be used as performance indicators of the broad market and for an indication of the market direction and investors' sentiment on the corporate sector and economy. The representative stocks within a benchmark index need to be highly liquid and reflective of the key corporate sectors that drive growth in the economy. At the same time the index should also reflect the underlying changes in the economy incorporating the emergence of new industries. Thus, for an index to be a useful benchmark and to be used as a reference by investors and market players, the index needs to be regularly reviewed and adjusted accordingly in line with market developments and the transformations taking place in the economy. Indeed, benchmark market indices would reflect the broader investor participation and growing maturity of a markets.