Reviving local interest in Malaysia’s surging stock market

Data shows that retail investors have been net sellers since the beginning of the year 


THE recent uptick in the Malaysian stock market has caught the attention of investors, both local and international. With a notable mini-bull run, foreign investors are returning, attracted by promising valuations and the Malaysian government’s pro-investment policies. 

However, this market enthusiasm contrasts sharply with the subdued participation of local retail investors. 

Despite an encouraging macroeconomic outlook, the disconnect between foreign and domestic investment sentiment raises important questions about the sustainability and inclusiveness of Malaysia’s economic growth. 

Foreign Interest Resurgence

Foreign investors have shown renewed interest in Malaysian equities, driven by several factors. The implementation of pro-investment policies by the new government has played a crucial role. 

For example, the recent partnership between the Madani government and tech giant Microsoft Corp, which involves significant investments aimed at digital transformation, has bolstered investor confidence. 

Additionally, foreign funds saw a net inflow of RM1.3 billion during the first week of May, reversing the RM1.3 billion outflow experienced in April. 

These developments underscore the positive sentiment among foreign investors, who are betting on Malaysia’s long-term economic potential. 

The Retail Investor Conundrum

In stark contrast, local retail participation has been disappointingly low. 

Data shows that retail investors have been net sellers since the beginning of the year, with RM827.1 million worth of local equities being offloaded. 

This trend is concerning, given that retail investors have traditionally been a vibrant component of the Malaysian stock market. 

Several factors contribute to this reluctance among local investors. 

SPI Asset Management MD Stephen Innes believes that retail participation on the local bourse is shrinking due to intense competition from a variety of external and internal options that are drawing investors away from traditional investment venues. 

Whether it’s Bitcoin, foreign exchange or commodity trading offered by foreign online platforms, he said the competition is intense. 

“These alternative investment opportunities are attracting retail investors with promises of higher returns, greater accessibility and the excitement of new and emerging markets. Traditional stock exchanges are finding it challenging to compete with the allure of these dynamic, often volatile and rapidly changing markets,” Innes told The Malaysian Reserve (TMR). 

In this environment, Innes opines that traditional investment venues need to adapt by offering more competitive and innovative products, improving accessibility and providing better education and support to retail investors. 

“By doing so, they can hope to retain and even grow their retail investor base amidst this fierce competition,” he said. 

Innes says retail participation in the local bourse is shrinking due to intense competition from a variety of external and internal options (Pic courtesy of Innes)

Impact of Economic Indicators

Innes noted the impact of economic factors like the weak ringgit and rising living costs on retail investors’ confidence in the stock market. 

He pointed out that lower interest rates both locally and in the US would significantly drive funds out of the safety of money market funds. 

Innes pointed out that high-net-worth investors, having access to US dollar savings accounts offering a 5% return, with potentially even higher rates available in Singapore compared to local rates, along with exporters hoarding US dollars for higher returns, contribute to the depreciation of the ringgit. 

“A weaker ringgit has deterred inflows, especially from unhedged investors, because a weaker ringgit can erode actual returns,” he said. 

However, Innes believes that this trend appears to be changing. 

With a weaker US dollar on the horizon, he said the door could open for foreign inflows as investors start to view undervalued Malaysian stocks as attractive investments. 

These stocks, he said, could offer additional gains from local currency appreciation, further enhancing their appeal. 

Innes suggests that this shift could bring much-needed capital into the Malaysian market, supporting economic growth and potentially leading to a stronger performance of local stocks. 

“For policymakers, maintaining a competitive interest rate environment and ensuring macroeconomic stability will be key to attracting and retaining these foreign investments,” he said. 

Innes noted that there is a belief that local investors are net sellers of local stocks because they have more confidence in buying foreign-based exchange-traded funds (ETF), which are primarily exposed to developed markets. 

He said this trend could be driven by fears of an impending trade war with the US or the perception that better returns on artificial intelligence (AI) products can be achieved through US firms rather than local ones. 

“Investors may be looking for stability and growth opportunities in established markets, especially given the uncertainties surrounding trade relations. 

“Additionally, the rapid advancements in AI and technology sectors in the US might be attracting those seeking higher returns, leading them to favour foreign-based ETFs over local investments,” he explained. 

However, Innes said this shift in investor behaviour underscores the need for local markets to bolster their attractiveness and competitiveness. 

Millennials and Investment Preferences

Interestingly, Innes said the millennials which now make up the lion’s share of the workforce, make them a crucial demographic to attract to traditional investment venues. 

However, he said, this increasingly savvy group of investors is often drawn to opportunities in Bitcoin and gold, where substantial demand from Asia continues to drive interest in these products. 

“Millennials are more tech-savvy and open to exploring alternative investments that promise higher returns and diversification. The appeal of cryptocurrencies like Bitcoin lies in their potential for significant gains and the decentralised nature of the market. 

“Similarly, gold remains a popular choice due to its historical value and stability, particularly during economic uncertainty,” he said. 

To engage this critical demographic, Innes said traditional investment platforms need to innovate and offer competitive, modern solutions that align with millennials’ preferences. 

This could include integrating digital assets, providing educational resources on diverse investment options and leveraging technology to enhance the investment experience. 

By doing so, he said, traditional venues can better compete with the allure of alternative investments and capture the interest of millennial investors. 

Opportunities and Strategies for Investors

Nevertheless, Innes said the projected economic growth of 4% to 5% this year lays a robust foundation for investor confidence and market participation. 

Government initiatives aimed at economic recovery further reinforce this positive outlook, particularly as Malaysia’s prospects align favourably with increasing investor interest in South-East Asia. 

“The anticipated growth rate signals resilience and potential opportunities for investors seeking attractive returns in the region. Malaysia’s strategic location, coupled with its strong economic fundamentals and government support for recovery efforts, positions it as an appealing destination for investment. 

“This fosters an environment where the narrowing gap between the valuations of small-cap stocks and big-cap ones on Bursa Malaysia presents opportunities for investors who are willing to navigate the market,” Innes said. 

He added that the convergence of valuations between small-cap and large-cap stocks indicates potential opportunities for investors to capitalise on undervalued assets in the small-cap segment. 

Historically, he said, small-cap stocks have exhibited higher growth potential and greater volatility compared to large-cap counterparts. 

As such, investors who are willing to conduct thorough research and take calculated risks may find compelling investment prospects among small-cap stocks. 

Innes suggests encouraging retail stock market participation through diversification and building a balanced portfolio with stocks, bonds, gold and Bitcoin to reduce risk and optimise returns. 

He recommends a long-term investment approach to benefit from growth and value appreciation across various sectors. 

He said investors should focus on promising sectors like Malaysia’s green energy and chip technology, supported by emerging trends and government initiatives. 

Lastly, disciplined investing, patience and aligning investments with personal financial goals and risk tolerance are key to navigating market volatility and accumulating wealth over time. 

  • This article first appeared in The Malaysian Reserve weekly print edition