Is our bourse still attractive?

THE foreign fund outflow for Malaysia’s equity market as of Dec 21 stands at RM 21.2bil.

This is the largest foreign fund outflow in the past few years with the highest recorded amount in the Covid-19 year of 2020 when the outflow hit a high of RM 24.6bil.

Many are particularly concerned considering we have a vibrant initial public offering (IPO) market that has 60 listings this year achieving a record.

The dissonance between the two situations cannot be more glaring. This is something that warrants our attention because it may have an underlying issue that requires remedial action.

The fact remains that Malaysia is a relatively stable economy with healthy global trade and economic growth.

Unlike Thailand and Indonesia that are going through political changes affecting its economic policies, we are in a stable situation, at least until 2027.

Yet, our stock market has a rather gloomy outlook if foreign fund movement is the indicator.

Old economy structure

Many have blamed our bourse’s lacklustre appeal to being packed with old economy companies such as commodities, plantations, banking and real estate.

Unfortunately, this is the nature of companies listed on stock exchanges for emerging and developing economies in comparison to developed countries.

High technology and research development companies like biotech are not common in this part of the world.

This reason is not sound as across the causeway, Straits Times Index (STI) has done very well in 2025 achieving 21% increase year-to-date on the back of 16.9% increase in year 2024 bringing total cumulative returns of 38% in the past two year.

Old economy structure plagues the index too, but what has changed for Singapore?

The introduction of the S$5bil (RM15.8bil) Equity Market Development Programme to strengthen domestic asset management and research ecosystem via seed money through fund-of-funds into local asset management companies with investment strategies in small mid cap listed Singapore companies.

Another would be the change in family office policies mandating no less than lower of S$10mil (RM31.6mil) or 10% of assets under management to be invested into Monetary Authority Singapore approved investments including SGX listed equities.

These two simple measures unlock stale capital within the capital markets of Singapore and help spur the performance of STI as a whole.

In comparison to the existing policies for capital markets in Malaysia, there is a lack of coordinated effort to focus on our local bourse apart from the Bursa Rise+ Scheme.

The highly touted GEAR-uP Programme has its own sets of implementation challenges which key policy makers are unaware of. That is a story for another day.

Building the ecosystem is an important foundation

We are very fortunate to have exciting semiconductor names listed on our exchange.

It is for this reason the sector remains attractive to foreign funds and commands premium valuation to other sectors’ peer.

That may be the case, a stock exchange cannot only consist largely of this type of sector.

A stock market is largely the reflection of the country’s economy pie. Take Nasdaq for example, the companies listed are largely technology and biotech companies, many of which were founded in Silicon Valley.

The historical origins stem from emphasis on research and development (R&D) and capital deployment into the space.

This is not only from the business community but also complemented from the education development.

Stanford University, University California Berkeley, The California Institute of Technology are good examples of education institutions that laid the foundation for R&D into technology and spurred innovation in the West Coast of the country.

When technology companies require capital, Wall Street plays the part to support the growth.

Upon monetisation and value unlocking, the wealth created gets ploughed back into the ecosystem as early as seed investing to foster new growth and innovation coming full circle.

What we are seeing is the fruits of labour being harvested over decades of hard work within an ecosystem.

Malaysia is far from that level of sophistication. The closest would be the Penang ecosystem between the semiconductor sector, founders and Universiti Sains Malaysia talents.

Quality of IPOs

Both our Finance Minister II Datuk Seri Amir Hamzah Azizan and Pemodalan Nasional Bhd president and chief executive officer Datuk Abdul Rahman Ahmad highlighted recently the lack of attractiveness of our local bourse due to the lack of big cap listed companies and IPO where liquidity is important to foreign funds.

This sentiment has some truth to it but it is not something that can be resolved in the short term. Big companies do not grow overnight, there are gestation period, at times spanning decades.

There is also a need to have supportive funding ecosystem at each phase of growth via private equity and venture capital.

Most importantly, there is a need to provide a level playing field and pro-business environment to nurture companies on the path of growth.

The ACE market listing performance is strong because Malaysia has a healthy pipeline of small and medium enterprises (SMEs) built over decades out of survival.

The SMEs have matured and now require fundraising channels beyond traditional credit financing from the banks.

Our local bourse vibrancy addresses the need and fills in the gap. After mapping out the entire funding ecosystem in Malaysia, there is not a single equity-based funding programme for SMEs in the country.

The irony is that micro, small, and medium enterprises contribute 40% towards the nation’s annual gross domestic product and provide employment to 50% of the total workforce.

The only funding programmes available in the country for SMEs are largely credit based financing by banks and development finance institutions.

Even startups have access to equity-based investment funding programmes via Jelawang Capital, (Malaysia Venture Capital Management Bhd and Penjana Kapital in the past) and mid-tier companies have support via Dana Impak under Khazanah Nasional Bhd.

As such, I highly recommend Bursa Malaysia to continue to support SMEs seeking Ace Market and LEAP Market listings and not change direction simply because the Main Market is not as vibrant. Otherwise, we would end up shooting ourselves in the foot by closing the door on SMEs.

Policies to encourage foreign fund flows

It starts with the existing listed companies, especially government-linked company (GLC) and those controlled by government-linked investment companies (GLICs).

There is the issue of crowding out the private sector.

When GLCs or GLICs dominate corporate Malaysia, it stymies the growth of private sector companies. It hampers SMEs’ growth to the next level. It forms an invisible barrier.

Very simply put, the existence of GLCs and GLICs is to support the nation’s economy.

Yet, their overbearing participation in the markets becomes a deterrent to SMEs to level up.

The competition for resources against giants like the GLCs puts the private sector at a great disadvantage.

The private sector must compete against GLCs for access to funding, land, approvals and permissions. The list goes on.

On an equal footing, the GLCs have a leg up. The only way for the private sector to compete or navigate is via speed, high productivity, intense cost savings and innovation.

These are the hardest to achieve. If our country is serious about building up companies with large market caps, funding and support should be granted to all companies with the greatest potential to succeed irrespective whether it is a GLC or otherwise.

In short, GLICs need to be objective in their capital allocation by supporting the companies with the best chance to succeed whether it is within the GLC ecosystem or otherwise.

I would like to take the opportunity to wish all a very Merry Christmas to those who celebrate the occasion and happy holidays to the others.

Also, capping off an extremely volatile 2025, let us all look forward to a better 2026 ahead.

Happy New Year and may all be blessed with good health.