PETALING JAYA: Share buybacks are unlikely to provide a meaningful buffer against foreign fund outflows from the local market, as the scale of such purchases remains too small relative to the amount of capital leaving the market.
iFAST Capital research analyst Kevin Khaw Khai Sheng said share buybacks, while positive in signalling management confidence and supporting undervalued stocks, would have only a “negligible” impact on stemming foreign selling, noting that annual buyback activity typically amounted to just a fraction of the tens of billions of ringgit in foreign fund outflows recorded.
“It is unrealistic to expect share buybacks to offset foreign fund outflows. It is not an apples-to-apples comparison. In Malaysia, share buybacks have never been as widely used as in some other markets, and we remain very much a dividend-driven market.
“A large portion of Bursa Malaysia is held by institutional investors, which means share buybacks do not have a material impact on the broader market landscape,” he told StarBiz.
Khaw, however, expects there to be an increase in share buyback activities among corporates looking ahead this year, but is not likely to be among the FBM KLCI constituents. Instead, he expects share buybacks to come from FBM70, FBM100 and small-cap stocks, particularly among cash-rich companies whose share prices have come under pressure.
“Share buybacks are generally less common among FBM KLCI constituents, particularly banks, which make up about 40% to 50% of the index.
“For banks, repurchasing shares reduces shareholders’ equity and can erode their common equity tier one capital ratio, so buybacks are typically not their preferred tool,” he said.
Meanwhile, Rakuten Trade head of equity sales Vincent Lau said share buybacks are gaining traction among mid-cap and small-cap companies, with some firms even opting to cancel treasury shares – a relatively “rare” move for such companies.
“In the United States, share buybacks are a common capital management tool and have proven effective in supporting shareholder value. In Malaysia, the practice is still evolving, but initiatives such as the MY Value Up programme could encourage wider adoption.
“There is room for companies to strike a better balance between dividends and share buybacks as a means of returning value to shareholders,” he said.
Lau said buybacks can provide support to share prices and investor sentiment, particularly when undertaken by companies with strong fundamentals.
Kenanga Research said since volatility hit the markets in 2025, Malaysia’s neighbours such as Thailand and Indonesia have improved the flexibility to tap into share buybacks. It said Malaysia is more active in terms of the number of companies taking advantage of buybacks, where about 17% of companies in Bursa Malaysia over the past two years have done so.
The research house foresees more opportunity for share buybacks among mid-sized names, though as a low hanging fruit. Based on its count, the top 30 FBM KLCI stocks possess relatively high dividend payout ratios.
As for larger caps, the research house said the ability for large caps to balance expectation of a sustained payout ratio on a periodic basis, while also mindful to be able to balance some capacity to support the stock during periods of under-valuation could provide greater enduring appeal to the market.
