PETALING JAYA: Foreign funds are continuing to return to Bursa Malaysia, as investors look beyond broad market caution and begin picking up thematic opportunities in sectors like technology and financial services.
After a massive RM22bil net selloff last year, foreign funds have turned net buyers, with nearly RM3.1bil recorded year-to-date.
Global investor interest in technology stocks, led by surging global artificial intelligence (AI)-driven optimism, is further fuelling the return of foreign money into Malaysian equities.
The Nasdaq index hit a new high last week, propelled by a robust US tech stock rally and strong quarterly earnings from semiconductor and AI-related companies.
With its role in the semiconductor and data centre ecosystem in the region, Malaysia is positioned to capture the tailwinds of the global upcycle, according to market pundits.
BIMB Research director of research Mohd Redza Abdul Rahman told StarBiz that capital is rotating into Malaysia’s technology sector, with an increase of 6.4% week-on-week, as an AI “catch-up” play.
“As global AI revenues approach the US$1 trillion mark, Malaysia’s role in high-end radio frequency testing and AI-chip verification makes it an essential component of a global tech portfolio, and this is also accelerated by the data centre theme.”
Additionally, he said Bank Negara Malaysia’s decision to maintain the overnight policy rate at 2.75% has provided predictability for the financial services sector.
Meanwhile, the ringgit’s appreciation to RM3.92 against the greenback is a further positive for foreign fund flows, as it delivers a dual benefit of capital appreciation and currency translation.
This stability also increases the likelihood of Malaysia’s weightage rising in global emerging market indices.
“Such rebalancing typically triggers passive ‘forced’ inflows from global fund managers who must align their portfolios with new benchmarks, and potentially attract active fund managers too,” he said.
Moreover, the country’s relatively steady gross domestic product (GDP) growth of 4.5% to 5.5%, alongside a predictable interest-rate environment, makes it a safe haven within the region for institutional and foreign investors, he said.
Mohd Redza expects a sustained increase in foreign fund flows in the coming months, driven by a shift in market narrative from “speculative bottom fishing to long-term structural allocation”, as investors focus on the execution of the 13th Malaysia Plan, the National Energy Transition Roadmap, and the New Industrial Masterplan.
JP Morgan, in its latest Asean equity strategy report, said Malaysia is making progress in enhancing corporate governance standards, and the MY Value Up programme offers investors an opportunity to position in stocks with potential value-unlocking catalysts.
It believes the programme signals a shift from policy intent to execution, with a focus on improving Malaysia’s valuations, corporate governance, and representation in regional indices.
iFast Capital assistant manager of research Kevin Khaw Khai Sheng said foreign fund flows should continue to improve, but it would largely be a result of positioning rather than wider earnings recovery.
“The marginal foreign seller has largely capitulated and the asymmetry is now to the upside,” he said, noting low levels of foreign shareholding and roughly RM20bil of net selling in 2025.
Khaw also opined that the financial services sector is likely serving as a “liquid, dividend-yielding parking spot rather than a conviction buy” for foreign investors.
“Foreign money was parked in banks in January, pushing them to record highs, yet the financial services saw the biggest outflow in March 2026 at RM756.1mil when the Middle East risks flared,” he added.
Tradeview Capital chief investment officer Nixon Wong similarly adopted a more cautious stance, with the view that it is still premature to conclude there will be a sustained structural rotation into Malaysia.
He opined that current foreign fund inflows likely reflect a short-term tactical move into undervalued Asean large caps, supported by improved macro sentiment and a softer US dollar.
“I see gradual improvements for reasons like structurally supportive AI and data centre-related investments, resilient GDP growth, improving policy credibility and a fiscal reform narrative,” he added.
Wong agreed that the market is seeing a tactical rotation by foreign investors into sectors like financial services, which provides an easy entry point with healthy liquidity, attractive dividend yields, a defensive nature, and exposure to resilient domestic growth.
However, he highlighted that the technology sector differs, as its appeal is largely linked to AI and data centre optimism, semiconductor upcycle expectations, and export leverage if global tech demand improves.
“I would watch for confirmation signals such as sustained ringgit strength, broader participation beyond banks and utilities, improving earnings revisions, consistently rising foreign ownership over several months, and catch-up in small- and mid-cap stocks.”
As global funds are still highly tactical and sensitive to factors like US yields, China growth, geopolitics, and oil prices, these indicators will determine the durability of inflows, according to him.
Overall, Wong said property and construction sectors linked to industrial parks and data centre ecosystems are key beneficiaries of fund reallocation.
“Funds are less likely to flow into the consumer sector, as it is expected to be pressured by cost inflation, as well as telecommunications, which is lacking strong re-rating catalysts,” he added.
In the week ended May 8, 2026, foreign investors on Bursa Malaysia turned net buyers, with a net inflow of RM210mil, breaking a three-week streak of net selling.
