PETALING JAYA: A one percentage-point improvement in return on equity (ROE) among Malaysia’s largest listed companies can likely lift the benchmark FBM KLCI by as much as 200 points, according to Permodalan Nasional Bhd (PNB).
Its acting president and group chief executive officer Datuk Rizal Rickman Ramli, who will take on the role officially on July 1, said the ROE improvement among the 88 companies under the MY Value Up programme could have a significant impact on the broader market.
The 88 companies, each with a market capitalisation of at least RM4bil, account for about 80% of Bursa Malaysia’s total market capitalisation.
“If you can make the 88 companies improve 1% (ROE), we think that is a 200-point index shift,” he said during a panel discussion on MY Value Up at Invest Malaysia – Kuala Lumpur 2026 yesterday.
The remarks come as Bursa Malaysia and the Securities Commission (SC) step up efforts to improve corporate value creation under the MY Value Up programme, launched in April under the Capital Market Masterplan 2026-2030.
Bursa Malaysia chief executive officer Datuk Fad’l Mohamed said 28% of Malaysia’s top 100 listed companies trade below book value.
In comparison, he said 39% of Japan’s top 100 companies traded below book value when it launched its corporate value reform programme, while the figure stood at 51% in South Korea.
Still, Fad’l said Malaysia’s market fundamentals remain sound, with the FBM KLCI trading at 14.7 times forward earnings, 1.5 times price-to-book and a forward ROE of 10.1%.
“These are not the numbers of a struggling market. These are the numbers of a market that the world should be paying far more attention to,” he said.
However, he said global capital flows are increasingly benchmark-driven, with more than US$21 trillion of assets linked to MSCI frameworks.
Against this backdrop, Malaysia’s weight in the latest MSCI Emerging Markets Standard Index has slipped to an estimated 1%, represented by just 21 constituents.
“For a market of our size, depth and strategic importance, that gap is not a footnote, it is a call to action,” he said.
“MY Value Up is one of the answers to that call.”
SC chairman Datuk Mohammad Faiz Azmi noted that about 250 of the 1,100 listed counters have ROEs of more than 8%.
However, he said the broader market has not translated that into stronger value creation.
“Our RM2 trillion equity of the RM4.3 trillion market only grew by 2.3% over 10 years,” he said, despite economic growth exceeding 5%.
Mohammad Faiz said the challenge lies not only in company performance, but also in how companies communicate with investors.
A review of the 88 companies under MY Value Up found gaps in investor communication, he said.
“Out of the top 88 companies that we looked at, six didn’t have an investor relation unit and four weren’t even covered by any analysts,” he said.
As such, he said MY Value Up aims to encourage companies to better communicate their strategies and value proposition to investors.
The programme will initially adopt a voluntary approach.
“We’ll try that first. But I’m very clear in my mind that come one, two years down the line, if it doesn’t work, we’ll have to try a different way,” he said.
MSCI Research and Development managing director Raman Aylur Subramanian said about US$21 trillion in assets are benchmarked against MSCI indexes globally.
He said index inclusion depends on three factors – market capitalisation, liquidity and free float.
“If you meet these three gates, the market cap gate, the liquidity gate, and the free float gate, you are eligible for index inclusion,” he said, potentially attracting flows from the roughly US$7 trillion in passive assets benchmarked to MSCI indexes.
While MY Value Up could improve valuations and liquidity, he said free float remained a structural issue.
He explained that index providers also assess the relationship between major shareholders and corporate decision-making, which complicates free float classification.
Raman added that when a major shareholder like a large fund or government-linked investor sits on the company’s board, they can influence decisions, even if they are not running the company day-to-day.
“As long as that connection is there, it’s very difficult for index providers to actually judge whether the share ownership is free float or not.”
Raman said investability remains the most important factor for benchmark inclusion, while active investors focus more on performance and valuation.
On long-term performance, Raman said MSCI’s research found that successful companies consistently delivered strong ROE, maintained disciplined capital allocation and upheld strong corporate governance practices, including board independence and transparency.
For PNB’s Rizal, improving ROE across Malaysia’s listed companies will be key to unlocking higher market valuations.
He said investors assess companies based on three questions – clarity of strategy, appropriateness of targets, and ability to deliver.
“What we want to see companies doing is establishing a three-year target, ideally tied to shareholder value,” he said, noting that such disclosures remain limited in Malaysia.
Rizal said ROE remains the key measure of shareholder value creation, noting that many listed companies still lag in capital productivity even though margins and leverage are broadly in line with regional peers.
“So the shortfall has been on capital productivity or return on assets (ROA),” he said.
Rizal pointed out that the local market has under-delivered on earnings expectations since 2015, falling short of consensus earnings per share (EPS) forecasts in nine of the past 11 years.
“Only two years we out-performed. Ultimately, there needs to be greater discipline at really delivering performance that is expected,” he said.
Rizal said boards must better understand what the market signals.
“If you have a low multiple and excess cash, that itself is a signal from the market that something needs to be done,” he said, adding that companies that successfully restructured their business models had seen clear re-rating in valuations.
He cited a property company that restructured into a recurring-income and fund management business, which lifted its price-to-book ratio from 0.3–0.4 times to close to 1 time.
Rizal said improving ROE also requires discipline at the project level, not just at board level.
“It starts project by project. Set a hurdle, ideally your cost of equity,” he said, adding that every investment decision must be assessed against its ability to generate value over time.
Lastly, he stressed that excess capital should be returned if it cannot be deployed productively, noting that Malaysia’s rising capital base has diluted EPS growth.
While corporate profits have broadly tracked GDP growth of about 5% to 6%, he said EPS growth has lagged at around 3% due to capital expansion.
By comparison, he said US companies have reduced their capital base through buybacks, supporting stronger per-share returns.
“Don’t be shy at doing buybacks and refinements,” he added.
Rizal said that if companies improve ROE through better capital discipline, project selection and capital management, it would ultimately support higher market valuations.
Based on current ROE levels of about 10% and a price-to-book ratio of 1.5 times, Rizal said the market is fairly valued at around 1,700 points.
“If you improve ROE by one percentage point, we think the market can be 1,850, if not 1,900,” he said.
He added that Malaysia last saw the FBM KLCI peak at 1,840 in 2014.
The FBM KLCI slipped 4.02 points, or 0.24%, to close at 1,675.50 yesterday, after trading between an intraday high of 1,687.93 and a low of 1,675.04.
