Malaysia's Stock Market Valuation

Excess Cash Holdings, Weak Capital Allocation Weigh on Malaysia’s Market Valuation — CIMB IB

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Publish date: Thu, 09 Jul 2026, 10:08 AM

 

   

KUALA LUMPUR (July 8): Malaysia’s long-standing equity market valuation discount is increasingly being linked to inefficient capital allocation rather than weak corporate governance, with excessive corporate cash holdings emerging as a key concern, according to CIMB Investment Bank Bhd.

In a strategy note following discussions at the Institutional Investors Council of Malaysia (IICM) Corporate Governance Conference 2026, the research house said panellists agreed that improving capital allocation and shareholder returns would be more effective in narrowing Malaysia’s valuation gap than governance reforms alone.

At the conference, Securities Commission Malaysia (SC) executive director of corporate finance and investments Datuk Zain Azhari Mazlan said about one-quarter of the 88 public listed companies identified as part of the MY Value Up programme hold cash equivalent to more than 30% of their assets, while cash balances exceeding 10% of assets are common across the broader market.

He also noted that among the companies engaged under the MY Value Up programme — the 88 with a collective market capitalisation of RM1.7 trillion, representing about 82% of the broader market's total — only 19 have disclosed quantified forward-looking targets, with most continuing to focus on historical performance instead.

Permodalan Nasional Bhd (PNB) president and group chief executive Datuk Rizal Rickman Ramli said Malaysian corporate profit growth has broadly tracked the country’s 5% to 6% gross domestic product (GDP) growth since 2010.

However, earnings per share (EPS) growth has lagged at around 3%, weighed down by sustained capital expenditure and equity issuance, in contrast with the share buy-back culture seen in the US.  

      

He added that Malaysian companies have exceeded consensus EPS forecasts in only two of the past 11 years since 2015.

An analysis of return on equity also found that while profit margins and financial leverage were broadly comparable with MSCI Emerging Markets and Asean peers, weaker returns on assets remained the main drag.

Against this backdrop, CIMB IB said it is more positive on the Government-Linked Companies Empowerment and Reform (GEAR-uP) programme than the disclosure-focused MY Value Up initiative, as GEAR-uP includes explicit shareholder return objectives.

Under GEAR-uP, six core government-linked investment companies (GLICs) aim to raise the market capitalisation of their investee companies by RM100 billion over five years, while targeting a minimum annual shareholder return of 7.5% on a combined RM540 billion invested in Bursa Malaysia-listed companies, according to the strategy note.

By comparison, CIMB IB said MY Value Up remains voluntary as listed companies are encouraged to submit disclosure plans by the end of 2026, with public disclosure expected in 2027. Mandatory adoption could be considered around the end of 2027, depending on market participation.

Zain said the framework was intended as a fallback mechanism rather than the starting point for corporate reforms, adding that no tax incentives are currently being considered as such measures would require the Ministry of Finance’s approval.

CIMB IB expects 2026 and 2027 to serve as a “credibility-building phase” for MY Value Up, with investors likely to focus on companies that provide measurable three-year targets, align management incentives more closely with return on equity and total shareholder return, and demonstrate tangible capital return initiatives.

The research house identified five 'buy'-rated companies that it believes are well positioned to benefit from the MY Value Up and GEAR-uP initiatives: Telekom Malaysia Bhd (KL:TM), RHB Bank Bhd (KL:RHBBANK), UEM Sunrise Bhd (KL:UEMS), Sime Darby Property Bhd (KL:SIMEPROP) and IJM Corporation Bhd (KL:IJM).

“We believe the key indicators to monitor will be company-specific evidence — quantified three-year targets, long-term incentive plan metrics tightened to return on equity/total shareholder return, visible capital return action on the roughly one-quarter of the market sitting on excess cash,” said CIMB IB.

Source: TheEdge - 9 Jul 2026

                                                                                                                                                   

The KLCI has performed very poorly over the last decade.

The KLCI has performed very poorly over the last decade.


KLCI
10 years ago 1628.55
6.1.2026  1671.56
+43.06 (+2.6%) over the last 10 years.

 

Analysis of KLCI's 10-Year Performance (2016–2026)

Overview of Returns

• Absolute Return: +43.06 points, or +2.64% over 10 years.

• Annualized Return: Approximately 0.26% per year.

• Inflation-Adjusted Return: With average Malaysian inflation around 2–2.5% per year, the real return is negative. Purchasing power of an investment tracking the KLCI would have eroded.

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Critical Discussion Points

1. Severe Underperformance vs. Global & Regional Peers

• Over the same decade, most major indices delivered significantly higher returns:

  • S&P 500: ~160% (approx. 10% annualized)

  • MSCI World: ~110%

  • Even regional peers like India’s Nifty 50, Indonesia’s IDX Composite, and Vietnam’s VN-Index outperformed.

• This suggests structural issues in Malaysia’s equity market beyond just global trends.

2. Possible Contributing Factors

• Economic & Political Headwinds:

  • Political instability (change of government multiple times between 2018–2023)

  • Slower GDP growth relative to regional peers

  • Decline in FDI in some periods; competition from Vietnam, Indonesia

• Market Composition:

  • KLCI is dominated by old-economy sectors (banking, plantations, utilities) with limited exposure to high-growth tech.

  • Lack of large, innovative public companies (compared to TSMC in Taiwan, Tencent in Hong Kong/Shenzhen).

• Liquidity & Sentiment:

  • Persistent net selling by foreign investors since 2014–2015.

  • Retail investor participation often speculative, favoring small caps over blue chips.

• Currency Effect:

  • MYR depreciated against USD over this period (~MYR 4.20 in 2016 to ~MYR 4.70 in 2026 est.), reducing returns for foreign investors and affecting capital inflows.

3. Dividend Consideration

• Total return would be higher if dividends included (KLCI average yield ~3–4%).

• However, even with dividends, total return likely underperformed global equities and possibly local fixed income.

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Broader Implications

For Investors:

• A "lost decade" for passive index investors in Malaysian large caps.

• Active stock selection or sector bets (e.g., tech, renewable energy) might have performed better.

• Highlights importance of global diversification for Malaysian investors.

For Malaysia’s Capital Market:

• Raises questions about market attractiveness and corporate governance.

• Government and regulators have attempted reforms (e.g., enhancing ESG, promoting tech listings via LEAP market), but results in index performance remain weak.

• Suggests that KLCI may no longer fully reflect Malaysia’s economic potential, with growth occurring in mid/small caps or unlisted firms.

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Conclusion

The KLCI’s near-flat performance over 10 years is disappointing and concerning. It reflects:

1. Macroeconomic and political challenges limiting corporate earnings growth.

2. Structural issues in market composition and global competitiveness.

3. Potential capital market stagnation relative to peers.

While dividends provide some consolation, the index’s failure to generate meaningful capital appreciation highlights the need for urgent reforms to revitalize public markets, attract listings of high-growth firms, and improve investor confidence. For long-term national prosperity, Malaysia must address why its premier equity index has barely moved in a decade.

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Analysis of the 2.6% Decade-Long Return in Bursa Malaysia

1. What This Means for Investors

A 2.6% total return over 10 years on the KLCI (Kuala Lumpur Composite Index) implies:

• Negative real returns after adjusting for inflation (Malaysia's average inflation over the past decade ~2–2.5%).

• Almost zero excess returns above the risk-free rate (FD rates averaged 2.5–3.5%).

• A lost decade for equity investors in index-tracking portfolios.

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2. Critical Discussion

a) Underperformance vs. Other Asset Classes

• Fixed deposits likely matched or beat KLCI returns with lower risk.

• Properties, gold, or global equities (e.g., S&P 500 returned ~12% annualized) vastly outperformed.

• This shows local equity market weakness and poor capital appreciation.

b) Structural Issues in Bursa Malaysia

• Concentration risk: KLCI dominated by finance, plantations, telecoms – sectors with low growth in this period.

• Liquidity & foreign outflow: Net foreign selling since 2014–2015 due to political uncertainty, governance concerns, and better opportunities abroad.

• Lack of tech/ex-growth sectors: Missing high-growth companies (compared to US/Asia tech booms).

c) Investor Implications

• Passive index investors suffered – active stock-picking might have yielded better returns (e.g., in small-mid caps).

• Dividends saved the total return: Much of the KLCI’s 2.6% likely came from dividends (yield ~3% avg). Without dividends, capital gains were negative.

• Currency effect: MYR weakened ~30% against USD over decade, hurting returns for foreign investors but also making exports more competitive (not reflected in local-currency index return).

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3. Comparison with Risk-Free Rate (FD)

• FD at ~2.5–3% meant equity risk premium was negligible or negative.

• This violates a basic finance principle: investors take higher risk (equities) for higher expected returns. Here, they were not compensated.

• Behavioral impact: Retail investors may lose confidence in equities and retreat to FDs, reducing market depth.

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4. Root Causes & Critiques

• Governance & politics: 1MDB scandal (2015), political instability (2018–2020), policy flip-flops affected market sentiment.

• Economic model: Malaysia stuck in middle-income trap, lacking productivity growth and innovation-driven IPOs.

• Market development: Bursa failed to attract large high-growth listings; many companies delisted or privatized.

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5. Conclusion & Outlook

The 2.6% return signifies:

• A failed decade for broad equity investors in Malaysia.

• Capital misallocation – money in banks yielded similar returns with less volatility.

• Need for portfolio diversification internationally – investors who kept assets solely in KLCI underperformed globally.

• For policymakers: urgent need to revitalize public markets, improve governance, attract growth sectors, and incentivize long-term equity investing.

Final note: While the KLCI return looks dismal, some individual stocks and sectors (e.g., gloves during COVID, certain consumer stocks) did well. This highlights the limitation of using KLCI as the sole market proxy – yet for most retail and institutional investors tracking the index, it was indeed a lost decade.

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Given the challenging environment in Bursa Malaysia, here’s how investors can strategically position themselves to profit, rather than passively accept low index returns:

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1. Shift from Passive Index Investing to Active Stock-Picking

The KLCI’s poor performance doesn’t mean all stocks performed poorly. Investors should:

• Avoid broad-market index funds tracking KLCI.

• Use bottom-up research to identify companies with strong fundamentals, good governance, and growth potential outside the KLCI heavyweights.

• Focus on small- and mid-cap stocks (under-researched, higher growth potential).

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2. Sector Rotation & Thematic Investing

Move away from traditional KLCI-weighted sectors (banks, plantations, telecoms) toward:

• Export-oriented companies benefiting from weak MYR (electronics, gloves, commodities).

• Technology – though limited locally, some EMS (electronics manufacturing services) and tech-related firms exist.

• Consumer & healthcare – resilient domestic demand.

• Renewable energy & infrastructure – government push for energy transition (solar, EV infrastructure).

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3. Dividend Investing with a Quality Screen

Since capital gains were minimal, dividends contributed significantly to total returns.

• Focus on high-dividend-yield stocks with sustainable payouts (e.g., REITs, utilities, selected blue chips).

• Ensure dividend growth – not just high yield but increasing payout over time.

• Dividend reinvestment plans (DRP) – compound returns even in flat market.

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4. Tactical Use of Fixed Income & Alternatives

Given equity returns matched FD rates:

• Strategic asset allocation – keep part of portfolio in higher-yielding fixed income (corporate bonds, sukuk).

• Consider money market funds or Islamic deposits for flexibility.

• Use Gold/Commodities as hedge against inflation and currency weakness.

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5. International Diversification

• Invest abroad via Malaysian feeder funds, ETFs, or direct trading in SGX, US markets.

• Gain exposure to high-growth sectors (tech, AI, healthcare) unavailable in Bursa.

• Currency diversification – mitigate MYR depreciation risk.

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6. Defensive Strategies

• Sell-write covered call options on stocks you own – generate income in sideways market.

• Pair trades – go long on strong sectors, short on weak KLCI constituents (if shorting is accessible).

• Value investing – look for undervalued stocks with strong balance sheets, low P/B, high net cash.

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7. Exploit Market Inefficiencies & Special Situations

• Merger arbitrage – Bursa has seen privatizations, M&A; exploit price gaps.

• IPO flipping with caution – some IPOs pop on listing day (though long-term performance mixed).

• Corporate actions – rights issues, special dividends, spin-offs can create opportunities.

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8. Adopt a Global Macro View

• Time entry/exit based on MYR cycles – invest when MYR is weak (helps exporters), hold cash/FD when MYR strengthens.

• Monitor commodity cycles (oil, palm oil) – position in related stocks accordingly.

• Watch foreign flow trends – buy when foreign selling is excessive (contrarian play).

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9. Utilize Structured Products & Leveraged ETFs with Caution

• Leveraged/inverse ETFs (available in Bursa) to profit from short-term moves (high risk).

• Structured warrants – for directional bets on index or stocks.

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10. Long-Term Strategic Shifts

• Reduce home bias – Malaysian investors traditionally over-allocate to Bursa. Global allocation is essential.

• Private market opportunities – consider private equity/venture capital via platforms targeting Southeast Asian startups.

• ESG-focused investing – global funds increasingly look for ESG-compliant companies; Bursa has ESG indices.

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Critical Reminder

• Risk management is key – low index returns don’t mean no returns, but they do mean stock selection matters critically.

• Cost control – avoid high brokerage fees, management fees on underperforming funds.

• Behavioral discipline – don’t chase speculative penny stocks; focus on fundamental drivers.

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Bottom Line:
To profit in Bursa Malaysia, investors must be active, selective, and global. The era of “buy and hold the KLCI” is over. Success will come from:

1. Picking winning sectors and stocks,

2. Harvesting dividends,

3. Diversifying internationally, and

4. Timing exposure based on macro cycles.

Investors who adopt this multifaceted approach can still achieve attractive returns despite the market’s overall stagnation.

Malaysia has seen 4 times more foreign capital outflow from stock market this year

 

Malaysia has seen 4 times more foreign capital outflow from stock market this year. What’s at play?

While Prime Minister Anwar Ibrahim’s government has repeatedly touted Malaysia as a high-value destination for foreign investment, international portfolio capital continues to leave the country’s financial markets.

KUALA LUMPUR: The Malaysian economy is not at risk of hitting any major bumps in the coming months, but the country’s tepid growth prospects and cautious political outlook are why foreign investors have been pulling out from its financial markets, economists and analysts say.

As of Sep 30, net portfolio equity outflow from the Malaysian stock market this year hit RM16.4 billion (U$3.9 billion), about four times the full-year outflow of RM4.2 billion in 2024, said RHB Research in a note earlier this month.

According to Bank Negara - the country’s central bank - the non-resident outflow from the stock market in 2023 was RM2.3 billion.

Foreign shareholding now stands at around 19 per cent of total market capitalisation and is at an all-time low, CIMB Research was quoted as saying in reports this month. The shareholding ratio has fluctuated between 22 per cent and 23 per cent for some years.

Bonds are bleeding too: September saw RM6.8 billion in net foreign selling, reversing a brief inflow in August, according to RAM Rating Services. 

RAM added in a note last week that foreign holdings in Malaysian bonds have already edged lower in the first half of this month, falling to RM285.8 billion as at Oct 14, down from RM287.0 billion as at end September. 

Bank Negara figures show that foreign holdings stood at about RM275 billion at the start of January, rising to a high of RM302 billion at end May this year, before retreating to current levels.

“It is a worrying trend,” former finance minister Tengku Razaleigh Hamzah told CNA of the haemorrhaging of foreign capital from the Malaysian financial markets.

“It is clear that foreign investors don’t have an upbeat long-term view on Malaysia, (with) little faith in … the management of the economy,” he added.

The exodus of foreign portfolio capital is a region-wide phenomenon because of the uncertainty in the international economy and concerns over new tariffs that the United States government has been threatening, investment analysts said.

Indonesia, Philippines and Thailand are also losing portfolio money from a broad cross-section of portfolio investors, comprising private equity interests, hedge funds, and large international pension and insurance companies.

But Malaysia’s outflow has been one of the sharpest among members of the Association of Southeast Asian Nations (ASEAN), raising serious concerns at a time when competition for limited overseas capital is becoming more intense among regional economies.

SLOWDOWN 

The Malaysian economy, ASEAN’s fifth-largest, is expected to grow at a slower pace of around 4.2 per cent next year, down slightly from the projected 4.5 per cent expansion in gross domestic product (GDP) this year, according to Kenanga Research.

The lukewarm outlook is despite the country’s success in attracting direct investments in key sectors of the economy.

According to the Malaysian Investment Development Authority (MIDA), the country attracted RM378.5 billion of approved investment in 2024, up 14.9 per cent from the previous year. 

For the January to June period this year, MIDA noted that approved investment hit RM190.3 billion, up 18.7 per cent from the same 2024 period.