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.

Buoyed by Malaysia’s robust post-pandemic economic growth and a surge in foreign investment by US tech giants, the Bursa Malaysia’s benchmark index has climbed as much as 17 percent over the past year.

Investors opened 289,000 new trading accounts during the first seven months of 2024, according to the Bursa operator, nearly double as many as those opened during the whole 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.

Yong, a longtime investor in the local stock market, said there was “significant room” for growth and that many companies had been undervalued for a decade.

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

Over the past decade, political turmoil and lack of economic competitiveness were seen as a drag on Malaysia’s stock market.

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 stock market is a reflection of the economy. And post-2005, our economy was not primed towards growth. It was just chugging along,” Tan said.

In a stinging commentary in December, Tong Kooi Ong, the owner of business newspaper The Edge, noted that the KLCI had produced an annual return of about 1 percent over the past 10 years, less than the typical return of a fixed deposit.

But market sentiment began to shift this year as the economy showed robust signs of growth and US tech giants, including Nvidia, Google and Microsoft, announced billions of dollars in investments in Malaysia to expand their cloud and AI capabilities.

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 ($19.3bn) in approved investments for the first quarter of the year, up 13 percent from the previous year, more than half of which came from foreign sources.

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

Initial public offerings have also been on the rise.

The exchange registered 34 IPOs in the first nine months of this year, compared with 31 during the whole of 2023.

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.

But its performance over the past year has held its own among much bigger rivals.

Financial audit firm Deloitte noted in a July report that Malaysia’s IPO market had led Southeast Asia during the first half of the year with about $450m raised.

The Bursa hit 2 trillion ringgit ($460m) in market capitalisation for the first time in May, when the KLCI breached the 1,600 mark for the first time in two years, and has remained near that level since.

“The positive performance of Malaysia’s equities market is underpinned by the stronger economic fundamentals of the Malaysian economy, along with several macroeconomic factors,” a Bursa spokesperson told Al Jazeera.

“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.”

While calling the local market’s robust performance a “welcome change,” a remisier with four decades of experience in securities nevertheless advised potential investors to exercise caution.

“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 the foreigners are going to pull out of the market…They are fast to cut their positions and exit the market once they find opportunities elsewhere.”

The remisier said while US tech firms’ interest in Malaysia had been welcome, political stability had played a crucial role in the current state of the economy.

While Malaysian Prime Minister Anwar Ibrahim’s approval rating has fallen from a high of 68 percent after his election in November 2022, he has managed to outlast his three predecessors.

Despite running a government featuring former political rivals, he has faced no serious public challenge to his rule.

Still, there are potential risks to the relatively rosy economic picture, including “sharply slower global growth, a heightened global financial market volatility or supply chain disruptions that would spill over to the highly open Malaysian economy,” Sunway University economist Yeah Kim Leng told Al Jazeera.

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

“I believe this momentum with the stock market will still go on for the next few weeks or few months as long as Malaysia maintains its consistency, and OPR,” Ezamie told Al Jazeera, referring to the Overnight Policy Rate, the Malaysian central bank’s benchmark interest rate.

“If Malaysia maintains its OPR… As long as we maintain the FDI and our GDP numbers, and if our inflation is very stable, I don’t see it (the stock market) other than going up.”