Once dubbed ‘world’s worst’, Malaysia’s stock market is making a comeback

Kuala Lumpur, Malaysia – Malaysia’s stock market is experiencing a steady revival as billions of dollars pour into an exchange once written off as one of the region’s worst performers.

The benchmark index for Malaysia has increased by up to 17 percent over the past year as a result of the country’s robust post-pandemic economic growth and US tech companies’ surge in foreign investment.

The Bursa operator claims that during the first seven months of 2024, 289, 000 new trading accounts were opened, nearly double what they had opened for the entire year of 2023.

“The market appears to be emerging from a ‘ lost decade, ‘ where it was previously undervalued with little upward movement”, Stephen Yong, a licensed financial planner with Wealth Vantage Advisory, told Al Jazeera.

Long-time investor in the local stock market Yong said there was “significant room” for growth and that many businesses had been historically undervalued.

“The outlook is positive as we enter a recovery phase, with more investor funds flowing into the Asia Pacific region, including Malaysia”, he said.

Political unrest and a lack of economic competitiveness have been seen as a drag on Malaysia’s stock market over the past ten years.

During the 2010s, the Bursa’s Kuala Lumpur Composite Index (KLCI), consisting of the top 30 companies by market cap, hovered between 1, 500 and 1, 900 points.

In 2018, the market entered a years-long spiral of decline, as a rapid turnover of prime ministers, the fallout of the 1MDB financial scandal, and the COVID-19 pandemic battered investor confidence.

A Bloomberg article in 2019 dubbed the Bursa the “world’s worst major stock market” after it suffered a 14 percent slump over a year.

Ignatius Luke Jr Tan, an investment banker for more than 40 years, said Malaysia’s market had until recently been effectively “moribund”.

“For years, it was neither here nor there… A lot of people in Malaysia did not believe the stock market was a place to make money”, Tan told Al Jazeera.

Feted as an emerging tiger economy during the 1990s, Malaysia began to lose steam after the 1997-98 Asian Financial Crisis, losing pace to neighbours such as Singapore, Tan said.

The economy is reflected in the stock market, according to the author. And post-2005, our economy was not primed towards growth. It was just chugging along”, Tan said.

Owner of The Edge, Tong Kooi Ong, noted in a stinging commentary in December that the KLCI had generated a return of about 1% over the previous ten years, which is below the typical return on a fixed deposit.

However, as the economy showed signs of growth and US tech giants announced billions of dollars in investments in Malaysia to expand their cloud and AI capabilities, market sentiment started to change this year.

In a report released by intelligence company DC Byte in July, Malaysia’s southern state of Johor, which borders Singapore, was named the fastest-growing market for data centres in Southeast Asia with more than 1.6 gigawatts of total supply.

Malaysia recorded 83.7 billion ringgit ($19.3 billion) in approved investments for the first quarter of the year, up 13% from the previous year, with more than half of those funds coming from outside.

In August, Malaysia’s central bank announced that gross domestic product (GDP) grew 5.9 percent in the second quarter of 2024, the biggest expansion in Southeast Asia apart from Vietnam and the Philippines.

In the week ending August 30, foreign investors bought a net total of 1.50 billion ringgit ($34m) in Malaysian stocks, the biggest net buying spree since March 2016, according to MIDF Research.

IPOs on the rise

Additionally, initial public offerings have increased.

In comparison to 31 IPOs in the entire year of 2023, the exchange had 34 in the first nine months of this year.

Those included the market debut of 99 Speed Mart, which raised 2.36 billion ringgit ($542.8m) in the biggest listing in the country in seven years.

Valued at nearly 2 trillion ringgit ($430bn), Malaysia’s Bursa is still dwarfed by regional peers such as Tokyo, Seoul, Mumbai, Singapore, Tokyo, Hong Kong and Shanghai.

However, its recent performance has outperformed that of much bigger rivals.

In a report from July, financial audit firm Deloitte reported that Southeast Asia’s IPO market had dominated in Malaysia during the first half of the year, raising about $450 million.

The Bursa hit 460 million ringgit for the first time in May, breaking the 1,600 mark for the first time in two years, and it has remained close to that level ever since.

A Bursa spokesperson told Al Jazeera that “the stronger economic fundamentals of the Malaysian economy, along with a number of macroeconomic factors,” supported the market’s positive performance.

“Analysts echo that there is room for further growth toward the year-end due to catalysts such as Fed rate cuts, continuous foreign direct investment (FDI) momentum, earnings recovery, ringgit strength, and positive news flows from infrastructure project awards”.

A remisier with four decades of experience in securities cautioned potential investors to exercise caution despite the local market’s robust performance calling it a “welcome change.”

“People watching the market right now may be tempted to jump on the bandwagon”, the remisier, who spoke on condition of anonymity, told Al Jazeera.

There is no telling when foreigners will leave the market because they quickly cut their positions and leave the market if they find employment elsewhere.

Political stability had a significant impact on the state of the economy, according to the remisier, despite the US tech firms’ interest in Malaysia being welcome.

Anwar Ibrahim, the prime minister of Malaysia, outlived his three predecessors despite his election record of 68 percent after his election in November 2022.

He has not faced a significant public backlash for his rule despite having a government that featured former political rivals.

According to Sunway University economist Yeah Kim Leng, there are “sharply slower global growth, a heightened global financial market volatility, or supply chain disruptions that would spill over to the highly open Malaysian economy.”

Eza Ezamie, managing director of Laughing Tree, a business funding matchmaker, said he is optimistic about the stock market’s trajectory.

According to Ezamie, who spoke about the Overnight Policy Rate, the Malaysian central bank’s benchmark interest rate, the stock market will continue to grow for the next few weeks or few months as long as Malaysia maintains its consistency and OPR.

Source: Aljazeera