Tough race for Bursa

Bursa Malaysia has not had it good so far this year.

While not the worst-performing in the region, it still lags far behind some of its peers.

Even the Singapore market, long considered to be a stock market laggard, has outperformed it by a fair margin.

As at June, Bursa’s foreign shareholding had dipped to an all-time low of 19%, driven largely by a combination of global risk aversion, worries over US tariff policies and, more importantly, investors shifting their attention toward higher-growth markets.

But local factors have played a part too.

Value Partners Group honorary chairman and non-executive director Datuk Seri Cheah Cheng Hye reckons that these days, investors crave liquidity.

“And by international standards, the Malaysian market is considered to be a medium- to small-sized market with limited liquidity.

“The problem is made worse by the large quantity of shares that are ‘frozen’ – meaning the shares are held by government linked companies, government funds and foundations, making them unavailable for trading, “ he tells Starbiz 7.

Cheah suggests that some of these “frozen” shares could be used to set up an exchange-traded fund (ETF) that can be publicly traded, thereby enhancing market liquidity.

This ETF can be structured to meet government objectives, while also providing fresh liquidity to the market, he adds.

Cheah, whose Value Partners is based in Hong Kong, points out that the Tracker Fund of Hong Kong alone has a daily trading volume more than six times higher than that of the entire Malaysian stock exchange.

Based on Bloomberg data, the daily trading volume in the Tracker Fund averages US$1.97bil.

“Comparing this with the average daily trading volume of US$332mil for all stocks listed on Bursa, we should seriously consider setting up a (similar) ‘tracker fund’ vehicle for Malaysia,” Cheah adds.

AHAM Asset Management deputy head of equity David Loh believes that after a difficult first half of this financial year (1H25), the stock market may finally be “turning a corner”.

“With the 5% market correction year-to-date, we believe much of the bad news has already been priced in.

“As one of the worst-performing markets this year, we see limited downside on a relative basis,” Loh says.

He adds that the large amount of cash still sitting on the sidelines could spark a rapid recovery once the macroeconomic backdrop improves meaningfully.

Money flowing elsewhere

Loh says the latest data shows that most foreign funds have rotated into North Asian markets such as China, Japan and Taiwan, which have gained 10% to 20% year-to-date in US dollar terms.

As these three markets together account for more than two-thirds of the MSCI Asia Index, it is almost inevitable that global fund managers will participate when they gain momentum, he points out.

“This sets up a self-reinforcing cycle, as rising markets attract inflows, which in turn drives markets even higher.”

As we enter 2H25, Loh says there are tentative signs of relief.

“Tariff uncertainty has eased and geopolitical risks appear contained.

“With these global distractions behind us, market participants can refocus on domestic fundamentals, underpinned by the recently published 13th Malaysia Plan.”

In the near term, a recovery in the ringgit, on the back of US Federal Reserve’s expected rate cuts, may provide support to the market, Loh adds.

“We also anticipate renewed momentum on the foreign direct investment front as tariff uncertainty fades, with Malaysia remaining an attractive destination, particularly in the technology and manufacturing sectors.

“On balance, these factors should help set the stage for a positive turnaround in the FBM KLCI and close the year on a stronger note.”

Fortress Capital Group chief executive officer Datuk Thomas Yong says the Malaysia market has been underperforming due to several interconnected factors.

Firstly, he notes that the FBM KLCI is heavily weighted towards traditional sectors such as banking, plantations and utilities.

These are mature, “old economy” industries that lack the high-growth narrative currently captivating global investors such as artificial Intelligence (AI), deep technology, or disruptive eCommerce, he adds.

“Corporate earnings growth for many blue-chip companies has also been modest.

“The market is lacking fresh, large-cap initial public offerings in high-growth industries that could generate excitement and attract new liquidity,” he says.

Yong also points out that liquidity remains a concern on Bursa, especially for large institutional investors.

This makes it difficult for them to enter and exit large positions without significantly impacting prices.

He says a significant portion of funds have flowed back to the US market, particularly into the tech sector.

“The ongoing AI revolution has created a massive gravitational pull towards companies like Nvidia, Microsoft and others within the AI value chain.”

Furthermore, Yong says other high growth emerging markets such as India continue to attract substantial inflows, driven by strong economic growth, demographic advantages and ongoing reforms.

China may also be drawing fund flows, judging by the recent outperformance of the Hang Seng Index, he adds.

Within Asean, he reckons that Indonesia remains a favourite.

“Also, with persistent geopolitical uncertainty, some funds are increasing their allocations to gold and other commodities as a hedge, potentially diverting liquidity away (from equities).”

Yong cautions that volatility will likely persist, as market direction remains heavily influenced by the pace of Fed rate cuts, ongoing tariff negotiations and the lack of strong domestic catalysts.