PETALING JAYA: As foreign fund outflows from the stock market crossed RM20bil in just 11 months of 2025 (11M25), analysts have warned the selling spree may well continue into next year.
As it stands, foreign investors have been largely net sellers of Malaysian equities for the most part of 2025, while retail investors provided little impetus to capital.
That said, local institutions such as the government-linked investment funds, have been holding the fort, filling in the vacuum left by foreign investors with a net purchase of over RM18bil so far this year.
In a note, CIMB Research said foreign investors’ cumulative outflows of RM20.3bil in 11M25 happened to be the worst since the nation went into lockdown due to Covid-19 back in 2020.
At RM20.3bil, the net withdrawals are also 4.8 times higher than 2024’s RM4.2bil outflows.
The massive fund outflow, while concerning, has not caused an uproar that some may have been looking for among analysts.
Rakuten Trade Sdn Bhd head of equity sales Vincent Lau said while this outflow marks a record one, it is more likely a temporary situation.
He said funds have remained invested in Malaysia, as they are net buyers of bonds and the strong ringgit.
Lau also clarified that regional markets had also seen rather large outflows this year, proving the record outflows were not contained to just Malaysia.
However, it is worth noting that Malaysia had suffered larger withdrawals of foreign funds this year alone till Nov 28 at US$4.66bil compared to Indonesia (US$2.21bil), Thailand (US$3.09bil), Vietnam (US$4.62bil) and the Philippines (US$663.1mil).
Indonesia, in particular, has been seeing net foreign inflows for the past eight straight weeks, as per the data provided by MBSB Research.
The massive fund outflows from Malaysia is alarming, considering the domestic stock exchange’s smaller market capitalisation compared to the exchanges of Indonesia and Thailand.
To put it into perspective, Bursa Malaysia’s market capitalisation stood at over US$400bil, while the stock exchanges of Indonesia and Thailand are valued at over US$900bil and US$500bil, respectively.
Still, Lau expects the tide to turn.
“With the possibility of rate cuts by the Federal Reserve, we expect the outflow from equities to taper off as there were sporadic inflows too,” he noted.
According to Lau, with more than RM20bil in outflows, the FBM KLCI has remained above the key 1,600-point level.
“This was largely supported by local institutions. Hence, if it were to persist into 2026, the same pattern will be observed. We remain optimistic and expect a better year ahead with trade deals finalised and new normals,” Lau said.
S&P Global Ratings senior economist Vishrut Rana also weighed in, stating the ringgit had actually strengthened relative to its peers, and hence, could have seen some near-term capital outflow pressures as a result of that.
“The ringgit has strengthened the most among major Asian currencies in year-to-date terms.
“However, over the course of 2026, the key drivers for inflows are likely to remain in place,” he told StarBiz.
Vishrut reckoned this would be backed by Malaysia’s strong current account position, robust electronics exports and ongoing investment into special economic zones, including the Johor-Singapore Special Economic Zone.
“The risk to the narrative arises from interest rate differentials. Interest rates in Malaysia are low and signs of slower monetary easing in the United States or elsewhere could raise capital outflow pressures,” he explained.
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the net outflows in equities took place at a time when the price-earnings multiples for the FBM KLCI are in the region of 15 times.
This, he said, is well below the long-term average of 17 times.
“It does signal that our equities market may not be competitive enough in the eyes of foreign funds.
“It could also mean there are captive markets in Bursa Malaysia where government-linked companies have a dominant presence – affecting the liquidity of the stocks,” he explained.
Mohd Afzanizam added the issue of net outflows does indeed warrant a policy discussion about competitiveness in the equities market.
Despite many perceiving the outflows to indicate a deeper shift in long-term foreign positioning, Mohd Afzanizam said if one were to look at Bank Negara Malaysia’s foreign exchange reserves, which have continued to climb, it signified that money is still circulating within the economy.
“They might place their cash in money market instruments such as Treasury Bills.
“As of October 2025, the ratio of foreign ownership went up to 17.1%.
“So, they have not completely exited from the Malaysian markets,” he said.
He also noted foreign fund flows in the fixed-income space have been commendable, with total net inflows recorded at RM21.8bil for 11M25 versus RM6.2bil in 11M24.
“The government has done well in reforming the economy, especially on the fiscal front.
“It reduced the budget gap from 4.1% of gross domestic product (GDP) in 9M24 to 3.3% of GDP in 9M25 largely from raising the tax revenue.”
