Budget 2027: Targeted incentives needed to attract regional institutional investors to Malaysian equities


KUALA LUMPUR: Budget 2027 should consider targeted incentives to attract more regional institutional investors to Malaysian equities, particularly under-owned mid-cap stocks.

These could include reducing withholding tax on Malaysian equity investment income or providing tax rebates subject to a minimum investment period.

Berjaya Research Sdn Bhd head of research Kenneth Leong said this was particularly important as foreign equity holdings remained close to a record low at just 18.4 per cent in July 2026.

"For now, foreign institutional investors are largely concentrated or invested in larger cap stocks such as larger cap banks, telcos, plantations and utilities.

"Meanwhile, under-owned mid-cap stocks are mostly traded among the local trading participants and some of these stocks could command strong earnings growth potential and transform into larger cap stocks over time,” he told Bernama.

Leong said Budget 2027 should also consider measures to strengthen research coverage and investor engagement for mid and small-cap stocks.

He said targeted incentives similar to the current Bursa Research Incentive Scheme Plus (Bursa RISE+) scheme could be considered to encourage brokers to cover selected small- and mid-cap stocks.

"Consider incentives to expand research coverage, corporate access and investor-relations activities, aimed at under-researched mid and small-cap companies as better information flow could improve price discovery, liquidity and valuations,” he said.

In addition, Leong also called for lower trading costs to improve market liquidity.

He opined that a reduction of stamp duty, clearing fees and other transaction costs could encourage greater participation and improve Bursa Malaysia's trading liquidity.

"For a normal stock transaction, the costs are stamp duty of 0.1 per cent of transaction value capped at RM1,000 per contract, clearing fees of 0.03 per cent of transaction value capped at RM1,000 per contract and brokerage fees which vary depending on brokers,” he said.

Leong added that while such costs were not exceptionally high in absolute terms, they could become meaningful for foreign institutional investors and frequent traders if these costs were to be reduced.

Budget 2027 will be tabled by Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim on Oct 9, 2026. - Bernama

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