CMP4’s critical role in capital markets

A POND may appear calm when water finds its own level, but without fresh inflows and outflows, it eventually stagnates.

Capital markets behave very much the same way. Against this backdrop and as the Securities Commission (SC) prepares to unveil the Capital Market Masterplan 4 (CMP4), Malaysia’s capital market finds itself at a point of transition.

Capital is more mobile, competition for listings is more intense and market relevance is increasingly shaped by speed, liquidity and adaptability.

The challenge before policymakers is not merely to refresh an existing framework but also to recalibrate how it operates in a faster, more dynamic and competitive global landscape.

The conclusion of CMP3 in 2025 marked meaningful progress, particularly in disclosure standards, digital financing initiatives and sustainability-linked frameworks.

Despite these advances, market activity has softened, liquidity has dwindled and Malaysia continues to lose high-growth companies to overseas exchanges.

The indexes over the past three decades reflect this. In early 1996, the FBM KLCI was trading around the low-1,000s, while the Dow Jones Industrial Average stood at about 6,500.

Today the FBM KLCI trades at 1,680-1,690 points, while the Dow Jones sits above 48,000, representing more than a seven-fold global gain compared to a modest rise at home.

The relatively low growth of Bursa Malaysia’s index (merely around 1.4x) reflects not cyclical weakness but unresolved “structural” issues.

This does not imply weak regulation or deficiencies in governance. Rather, it points to misalignments in how capital is formed, recycled and retained within Malaysia’s public market.

These structural misalignments have become more visible as the competitive landscape for capital has expanded beyond the public equity market itself.

This competitive pressure no longer comes solely from other public exchanges.

Today, capital competes across a far wider set of alternatives – global equities, private markets, digital assets and increasingly frictionless online trading channels that allow investors to deploy funds across borders with ease from their mobile devices.

Cryptocurrencies, private equity, venture capital and overseas markets now sit alongside domestic equities as viable destinations for risk capital, intensifying competition for liquidity, attention and participation.

Ultimately, markets must align with how capital, companies and investors behave today – and that is where CMP4 becomes critical.

Why IPOs alone are insufficient to stimulate market activity

At its core, a vibrant capital market is conventionally driven by two engines: initial public offerings (IPOs) and mergers and acquisitions (M&A).

Malaysia’s regulatory framework has historically focused heavily on IPOs, while M&A – particularly reverse takeovers (RTOs) and backdoor listings (BDLs) – has been treated with disproportionate caution.

This creates imbalances whereby IPOs become the dominant growth pathway while M&A activities could result in privatisation, with capital being removed from the public market instead of being recycled, leaving in its wake lost opportunities for corporate renewal and transformation.

Globally, RTOs and BDLs are legitimate avenues for M&A-led growth, with minority shareholders protected.

When a transaction results in a change of control or business direction, minorities are safeguarded through transparent exit mechanisms, including the mandatory general offer (MGO) requirement.

CMP4 should therefore aim to recalibrate this approach, allowing market-driven M&A to flourish while maintaining strong disclosure and shareholder protection mechanisms.

The cooling of trading activity on Bursa Malaysia since the pandemic actually reflects deeper structural constraints in the composition of the listed market.

Malaysia’s exchange remains dominated by mature, traditional businesses that meet historical profit and cash-flow listing tests.

By contrast, high-growth sectors such as technology, software, artificial intelligence (AI) and digital platforms, now the main drivers of global market liquidity and valuation rerating, remain somewhat under-represented.

This is not due to a lack of entrepreneurial capability. Rather, it reflects a framework that is misaligned with modern growth business models.

High-growth companies typically invest heavily before turning profitable.

Requiring positive operating cash flows at the point of listing places Malaysia at a competitive disadvantage and explains why companies such as Grab ultimately chose to list overseas.

The recent market segmentation consultation conducted by the SC, which proposed removing positive operating cash flow as a key requirement along with other changes, should be lauded as it clearly demonstrates that the authorities have acknowledged structural issues and are seeking immediate modifications.

CMP4 should therefore aim to move towards a more forward-looking assessment of listing suitability, supported by robust disclosure, rather than rigid reliance on backward-looking profitability metrics.

Differentiate through M&A-led listings supported by a pragmatic approach for foreign ones

Malaysia cannot realistically compete with the United States, Hong Kong or Singapore for top-tier global technology listings.

However, it can position itself as a credible regional platform for M&A-driven listings and corporate transformation. This is our nation’s “sweet spot”.

Liberalising the RTO and BDL framework – with greater emphasis on market capitalisation thresholds rather than narrow profit or sector tests – would allow Bursa Malaysia to attract well-managed mid-tier regional companies.

These transactions introduce new sectors, seeking to increase liquidity while expanding the investor base and reducing execution risk for issuers.

At the same time, regulatory thresholds for privatisations should be made more stringent.

While M&A strengthens the market, delistings weaken it.

CMP4 should therefore aim to actively discourage unnecessary exits from the public market.

Foreign listings should continue to be encouraged, but with a pragmatic shift in emphasis.

Rather than relying solely on traditional IPOs, Malaysia should welcome foreign companies through M&A routes (RTO or BDL) that allow them to acquire or merge with existing listed entities.

For many second- and third-tier regional companies, this approach offers faster market access, lower execution risk and built-in capital flexibility.

Some Malaysian companies with strong cash reserves could serve as potential hosts for mid- and second-tier AI or information technology companies – which typically cannot meet the profit test or qualify as IPOs – to consider listing on Bursa Malaysia, provided that market capitalisation can be included as a criterion for RTO or BDL consideration.

Over time, such transactions can significantly enhance the diversity and dynamism of Bursa Malaysia.

As Malaysia’s capital market evolves, regulators must learn to trust market maturity while ensuring advisers, promoters, and issuers uphold high standards of disclosure and conduct.

Today’s investors are sharper, savvier and better equipped to act when information is clear, timely, and complete.

The success of CMP4 therefore hinges on striking the right balance: giving companies the flexibility to raise capital and transform, while safeguarding minority shareholders and enforcing rules credibly.

If we get this right, Malaysia’s capital market stands to regain depth and liquidity, emerging stronger, more competitive and future-ready for the investment community today and the next generation to come.