Malaysia’s relevance waning among global investors, says Phillip Capital

Its stock market remains mired in “old economy” sectors, with little representation in growth themes such as artificial intelligence (AI).

Malaysia’s stock market has suffered foreign net outflows in nine of the past 11 years. (EPA Images pic)

PETALING JAYA:

 Malaysia’s equity market remained largely out of favour with foreign investors throughout 2025, with foreign net outflows hitting the third-highest level in 15 years, said Phillip Capital.

Malaysia recorded cumulative foreign net equity outflows of US$4.8 billion (RM19.43 billion) in the first 11 months of 2025, marking the third-largest annual outflow since 2010.

This was surpassed only by the US$5.8 billion (RM23.48 billion) exodus during the Covid-19 pandemic shock in 2020 and the US$5.1 billion (RM20.64 billion) outflow in 2015, the research house said in its Malaysia Strategy 2026 Outlook report.

It noted this is not an isolated event, as Malaysia has suffered foreign net outflows in nine of the past 11 years.

“The sustained capital flight has pushed foreign shareholding to a historical low of 19% as of November 2025.

“We view this as indicative of Malaysia’s waning relevance among global investors, given its modest circa 1% weight in the MSCI Emerging Markets index and the relatively stronger appeal of other Asian markets offering greater exposure to structural growth themes,” Phillip Capital said.

By comparison, Malaysia’s equity market remains heavily concentrated in “old economy” sectors, with limited representation in the artificial intelligence (AI) space, reducing its attractiveness in an increasingly thematic-driven investment environment, it said.

2026 positive for Malaysian equities

Nevertheless, the research house expects 2026 to be “a more favourable year for Malaysian equities”, supported externally by easing trade tensions and a more accommodative global monetary policy.

Domestically, a firm ringgit, attractive market valuations, and continued government-linked companies’ support for large caps should improve risk-reward dynamics and enhance liquidity ahead of the general election.

It has a year-end 2026 target of 1,710 points for the FTSE Bursa Malaysia KLCI (FBM KLCI), maintaining a “neutral” stance on the market.

The KLCI closed on Christmas Eve at a nearly 16-month high of 1,678.31. The benchmark index closed 1.21 points lower at 1,677.10 today and is up 2.1% year to date.

Phillip Capital sees domestic market performance in 2026 being supported by a few key themes:

• Rising FDI driven by trade diversion;
• Investment upcycles;
• Data centre expansion;
• Green energy transition;
• AI technology cycle; and
• Visit Malaysia Year 2026.

“Most of these themes align closely with the government’s long-term policy agenda, offering a multi-year investment roadmap with strong visibility.

“Among them, data centre growth and energy transition stand out as particularly compelling drivers heading into 2026,” it said.

It said this thematic outlook underpins its “overweight” ratings in banking, construction, electronics manufacturing services, industrial, and renewables, with healthcare, oil & gas, and the transport sectors remaining attractive given their “strong earnings visibility”.

Phillip Capital’s top picks for large cap stocks are CIMB, Frontken, Gamuda, IHH Healthcare, Telekom Malaysia, and SD Guthrie.

Its small-cap top picks are Critical, MN Holdings, BM Greentech, Solarvest, Binastra, Uzma, Dayang, Armada, RGB, and AGX. - FMT