KUALA LUMPUR (Sept 12): Malaysia’s relative stability at a time when its Southeast Asian neighbours grapple with political turmoil could help attract foreign inflows into its stock market, said CGS International.

Foreign fund outflows from Malaysia have reached 3.5% of market cap year to date, among the largest in the MSCI Emerging Markets Index and nearly matching Indonesia’s, while exceeding that of Thailand and the Philippines, which CGS International said in a note is unjustified given the political stability.

“Given its lower political risk premium compared to other Asean peers in the index, we reckon it is plausible for Malaysia to benefit from a switching of fund flows going forward,” the house said.

Indonesia has been rocked by anti-government protests that broke out in August while a political crisis has led to Thailand’s third prime minister in two years. In the Philippines, President Ferdinand Marcos Jr and Vice President Sara Duterte are embroiled in a long drawn bitter feud.

Malaysia, in contrast, is enjoying political stability with Merdeka Center reporting a rise in approval rating for Prime Minister Datuk Seri Anwar Ibrahim and his administration in a survey carried out in May.

Further, rate cuts by the US Federal Reserve could narrow the spread to Malaysia’s overnight policy rate, which should lift the ringgit, harking back to the third quarter of 2024 when the currency surged over 11% against the US dollar in the running up to the US’ first post-pandemic rate cut.

“Narrowing interest rate differentials are also positive for the Malaysian stock market,” the research house argued, noting that the FBM KLCI rose over 7% from its lows on the back of an appreciating ringgit around the same time last year.

Traditional window dressing of key components of the 30-stock index in the final months of 2025 could also help propel the KLCI to 1,690 by year end, the house added.