This article first appeared in The Edge Malaysia Weekly on January 5, 2026 - January 11, 2026

WHY are some stock markets more successful than others in attracting global investors? The reasons are many, obviously, from macroeconomics — economic growth prospects, fiscal and monetary policies, productivity, competitiveness, currency outlook and so on — to political stability, the broader equity market infrastructure, regulatory environment, accessibility, depth and liquidity, quality and type of listed companies, as well as less tangible factors such as trust in and integrity of government and the corporate sector. Some of these factors may complement or work in conflict with each other at different points in time. Strengths can be offset by weaknesses in other areas. For instance, favourable demographics and strong economic-earnings growth can be offset by systemic corruption, weak rule of law and poor corporate governance that erode investor protection and confidence.

And of course, all equity markets compete for the same pool of global investor monies. That is, the attractiveness for each bourse — and its potential returns — is measured relative to other markets. Back in the early-1990s, Bursa Malaysia (then known as the KL Stock Exchange) was a huge draw for global investors — outperforming many of its peers and even developed markets in terms of vibrancy, liquidity and returns. It was then one of the most valuable stock markets in the world. But Bursa has gradually lost its attractiveness over time. After the Asian Financial Crisis (AFC), it took the bellwether FBM KLCI 10 years just to recover back to its 1997 peak, and never in terms of foreign ownership, liquidity and valuations. There is no question that Bursa has been overtaken by all of its peers, in relevance and performance since the AFC and especially in the past decade.

The FBM KLCI hit a nominal all-time high of 1,896 in July 2014 — but is now hovering a little above the 1,600 level. Yes, a negative return after more than a decade, the worst-performing market in the region. As we said, there are many reasons why a stock market performs poorly. For Bursa, the most significant negative event in the past decade was the massive 1MDB scandal that deeply affected investor confidence in the Malaysian government and institutions as well as the nation’s finances, all of which contributed to the secular depreciation of the ringgit.

Portfolio investment flows tend to be closely correlated to the nation’s currency outlook. For global investors, what matters is returns relative to other stock markets and investments, and that means returns are most often measured in equivalent US dollar terms. In other words, stock market gains in ringgit will be offset (marked down) by forex losses when the ringgit depreciates against the US dollar. That is, if there are gains. The fact of the matter is, returns for the broader market have been very poor (of course, there are individual outperformers). As we noted, the bellwether index — composed of the 30 largest stocks on the local bourse — recorded a negative return over the last 10 years.

We wrote about the corporate governance weakness and the lack of trust and integrity in many of Malaysia’s listed companies a few weeks back. When investors don’t believe that management and controlling shareholders will always act in the best interests of all shareholders, and when the board of directors and regulators fail to protect the interests of minority shareholders, they will not invest. Not when there is a smorgasbord of opportunities available. Investors today are spoilt for choice, thanks in no small part to technological advancements that have turned investing truly global. In the most extreme cases, we see Bursa-listed companies being priced at less than the cash they hold — that is, these companies have negative enterprise values, up to hundreds of millions of ringgit. In this article, we will focus on another aspect of why Bursa has been a chronic underperformer.

Table 1, we think, says a lot. It compares the 10 largest listed companies on Bursa in 2000 and today. After 25 years, the names are still mostly the old familiar ones and dominated by “old businesses” — the big banks, utilities (telco, gas and electricity) and plantation. Contrast this with the US. The largest companies today are almost completely different from those of yesteryear. More importantly, the composition of the businesses is also very different — from energy, industrials, consumer and financials to technology. Incidentally, the lone Top 10 survivor from 2000 is Microsoft, a tech company.

What is also notable is that today’s US mega caps are much larger than back in 2000 — an indication that they are growing faster than the average company. And this is unsurprising given that tech companies (disruptors to traditional businesses) saw strong demand and sales growth over the past two decades and have higher average margins, leading to stronger earnings growth and valuations. This is evident not just in the US but also in tech-advanced Asian countries. Case in point, Taiwan Semiconductor Manufacturing Company Ltd (TSMC) now accounts for over 42% of the TWSE Index, up from 12% in 2000, while Samsung makes up more than 18% of the South Korea KOSPI’s total market cap, up from 14.5% in 2000.

Table 1 underscores the very slow transformation of the underlying Malaysian economy to high-growth, higher-value-added and higher-margin businesses, unless the stock market is increasingly disconnected from the real economy. We don’t believe this is the case and the data is supportive of this conclusion. Total revenue for Bursa-listed companies closely tracks Malaysia’s nominal GDP growth (Chart 2). It is the companies’ profitability that’s falling short. Slow transformation is one of the reasons for the chronic underperformance of the Bursa — profit margins are gradually eroded by rising costs.

Technology stocks account for only 4% of the total market cap for Bursa, compared to 25% for financials, 14% for consumer, 12% for industrial and 10% for utilities. A far cry from the shift seen in the US — see Chart 1 for the changing composition of the S&P 500 companies from that in 2000 (bear in mind that Alphabet, Meta and Amazon are classified under communications and consumer discretionary sectors).

Our largest listed companies are still engaged in old, asset-heavy businesses, many of which are domestic-centric and protected by high non-tariff barriers to entry. This breeds complacency, resulting in the gradual erosion of competitiveness. As industries mature, growth will slow and profitability narrow over time as competition grows. This is compounded by the fact that Malaysia’s domestic market is relatively small. For instance, the total market cap for telcos has been in decline since peaking in 2014. At that time, cellular penetration rate in the nation was nearly 150% of total population (including babies and children). Clearly, the mobile retail market was already saturated. And the telcos failed to create new engines of growth. They became yield stocks.

Additionally, domestic businesses are facing increasing competition in the global marketplace from other low-cost emerging nations like Vietnam and especially China (highly competitive given its huge domestic market, economies of scale and extremely efficient supply chain ecosystem), as well as from imports in the local market. We have written previously about Malaysia’s low productivity growth over the past decade relative to regional peers. And as we have previously articulated, although Malaysians are lowly paid, they are not underpaid relative to their productivity. (Read our article “Labour is lowly paid but not underpaid in Malaysia”, published in The Edge, May 13, 2019.) Productivity growth has also been slower than growth in wages — across time and most sectors. There’s a lot of talk about the need to raise wages, but the fact is, companies cannot afford to pay more. This is evidenced by the decline in profit margins and returns on equity (ROE) for all Bursa-listed companies over the past 10 years. Chart 3 summarises the data for all companies, but the same trend is seen across all sectors. It is hard to entice investors with falling margins and ROE.

Here’s another noteworthy fact. Much has been written about Malaysia being slow to move up the value chain (continuing to rely on low-skilled labour and creating low-skilled jobs). Nowhere is this more evident than the relatively low margins of our listed tech companies — topping out at 7%-8% even in the best years (save for the unsustainable pandemic surge). Malaysia’s tech companies occupy the lower-value end of the global supply chain, with limited pricing power and rising competition. Compare this to the average margin in the US, of around 27%-28% (Chart 4). US techs include hardware (equipment and semiconductor), software and platform companies with proprietary IP — moats that protect margins and pricing power. These companies also gain from scale and network effects, as underscored by rising profitability — current margins are higher than the last five-year average. The growth in tech stocks lifted the overall S&P 500 margins over time, from under 7% back in 2000 to an all-time high of 13.1% in the latest 3Q2025, underpinning the US equity market’s outperformance.

As we said, global investors have a wide range of investing options. Almost all will gravitate towards high-growth, high-margin stocks with enduring moats — for higher future returns. Except for the financials and property sectors, all other Bursa sectors reported net margins that were well below 10% in 2024. Construction, consumer, industrial and energy sectors reported net margins as low as 4%-5%. Little wonder that Bursa is rapidly losing its attractiveness relative to other markets. And this has been happening for years, culminating in the dismal underperformance of the Malaysian equity market.

Chart 5 (on next page) shows yet another interesting fact. We separated the market caps for all listed companies by the years they were listed. While the total market cap for the local bourse is rising, the growth is driven primarily by new listings. The market values for companies listed in prior years have either stagnated or downright fallen, such as the telco sector as we noted above. Just look at the blue bar, which shows the total market cap for companies that have been in existence in 2000. Again, this trend is mirrored across nearly all sectors. The only exception being the financial sector, which is domestic-centric, highly regulated with high barriers to entry. What this tells us is that many Bursa-listed companies are either unable or reluctant and averse to finding new S-curves, even as their existing businesses mature past prime (market saturation, disrupted by technology and so on). Why?

We think part of the reason is because many of these old businesses are family-controlled. Nepotism is evident. And generational transition has been shown to lead to strategic paralysis, when heirs cannot come to a consensus or are simply not interested in these old businesses. In the US, companies are run by professional managers, and underperforming CEOs are quickly replaced. Compensation packages are often tied to the company’s financial performance, which incentivises management to focus on growth and profitability (yes, albeit at times, too short-term-focused).

The interests of the controlling shareholders oftentimes do not align with that of minority shareholders’. In Malaysia, there is an absence of activist shareholders to take companies to account and regulatory enforcement is weak, as proven by the many past transgressions. As we wrote some weeks back, governance is a key factor for investors — they will value companies at a discount when there is lack of trust in and integrity of management, and board of directors do not protect and maximise value for minority shareholders.

There seems very little impetus for Bursa companies to unlock value for the benefit of all shareholders. For instance, monetise old assets (such as idle properties) and recycle proceeds in higher-return investments or return excess cash to shareholders. As a result, many stocks, while appearing cheap, are value traps for investors. Case in point, average ROE for the market has fallen over the past decade and is currently hovering at just above 7%. Six in 10 companies are currently trading below their book values, of which more than half are trading below 0.5 times book values.

Economic transformation and structural reforms to improve productivity, competitiveness and profitability takes time. And quite frankly, few countries can emulate the US’ technological transformation and global dominance. That takes an entire ecosystem, from talent to R&D, inclusive institutions, deep capital markets and more. Fact is, smaller nations do not have the necessary resources. But there are ways to raise shareholder values, yes, even for old businesses.

Japan is an excellent example of how the government and the Tokyo Stock Exchange (TSE) are driving corporate governance reforms, such as measures to compel companies to boost capital efficiency, including monetising non-core and low-return assets and recycling proceeds and/or returning excess cash to shareholders. That, in turn, is changing Japanese management attitudes — to being more open to activist shareholders and increase independence of board of directors.

The results are evident — the Nikkei 225 has outperformed even the S&P 500 in the last three years. What’s more — investors were buying even as the yen was weakening against the US dollar. In other words, it is the total returns that matter — as long as the stock price gains exceed forex losses. South Korea and now Singapore are taking a page from the TSE.

The Singapore government, Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) are undertaking a series of actions to enhance the attractiveness of its equity market (increase liquidity, market breadth and depth) such as the Equity Market Development Programme (EQDP) and Value Unlock Programme to boost shareholder returns. One recent proposal is the setting up of a dual-listing bridge with Nasdaq, to attract high-growth Asian companies to list on the SGX while simultaneously accessing the US capital pool. At the same time, SGX is promoting this “Global Listing Board” to US companies with meaningful Asia-Pacific operations, as the base to attract regional funds. The collaboration will streamline regulatory obligations and allow issuers to use a single set of fundraising documents for both markets.

Snagging the listings of quality companies with exciting growth prospects is critical to attracting and sustaining global investor interests. IPOs cannot be used primarily as a cashing out machine for private companies with businesses that are already near peak. Indeed, the size of the equity markets — diversity and quality of companies — are increasingly critical for smaller markets to stay relevant and compete for global investor monies.

Larger markets have the benefits of higher liquidity and valuations. And for the listed companies, higher valuations make it cheaper to raise funds — lower cost of capital for growth, be it organic or through M&A. Scale leads to greater competitive advantage in a winner-takes-all global race. The most successful companies will then attract more investors in a positive feedback loop. Case in point, the US equity market today makes up nearly two-thirds of the MSCI All Country World Index, up from about half back in 2000 — even as its share of global GDP declined from about 30% to 26% over the same period. This is because American companies are capturing a disproportionate share of global profits (dominating the high-growth, high-margin tech sector), and commands higher valuations with its robust corporate governance and shareholder return culture.

The Straits Times Index (STI), the benchmark index for SGX, has performed very well in the last 1½ years. State-owned index heavyweights DBS and Singtel are leading by example, stepping up capital management initiatives to increase shareholder returns. DBS has committed to return S$8 billion excess capital to shareholders between 2025 and 2027 via higher dividends, capital returns and share buyback (shares bought back are cancelled, reducing the issued shares and thereby increasing EPS and ROE). Similarly, Singtel articulated the Singtel28 growth plan in May 2024, designed to improve business performance and sustained “value realisation” for shareholders over three to five years. The plan includes assets recycling, disposing of old, low-performing assets — for example, it recently pared its stake in Airtel Bharti, raising S$3.5 billion — and returning part of the proceeds through additional dividends (value realisation dividend) and share buybacks, as well as reinvesting into new growth engines such as data centres, and digital enterprise businesses. In May this year, Singtel raised its mid-term asset recycling target from S$6 billion to S$9 billion.

Clearly, revitalising the Bursa equity market requires a holistic approach — improving macroeconomic fundamentals (productivity, competitiveness, growth, fiscal sustainability, currency), education system, integrity and credibility of domestic institutions, market-driven policies and fair competition, transparency and ease of doing business as well as more specific measures like strengthening the regulatory environment, enforcement and minority shareholder protection, improving market liquidity, diversity and quality of listed companies, raise company capital efficiency, and promote shareholder value creation culture and corporate governance. Given the dominance of the GLCs on Bursa (55% of total assets and 42% of market capitalisation), changing investor perception of perennial underperformance by instituting clear commercial mandates and limit government intervention to raise returns on investments is key. Also, increase free float by gradually paring state ownership, lessen GLCs crowding out and recharge the private sector. In short, create a narrative, a story to sell Bursa to global and domestic investors — and critically, put action behind the words.

All three portfolios ended lower for the week ended Dec 31. The Malaysian portfolio fell  by a marginal 0.1%, underperforming the broader market. The biggest winners were  Hong Leong Industries (+1.1%), United Plantations (+0.7%) and LPI Capital (+0.3%) while the losers were Insas Bhd – Warrants C (-50%) and Kim Loong Resources (-2.5%). Total portfolio returns now stand at 203.4% since inception, outperforming the FBM KLCI, which is down 8.2% over the same period, by a long, long way.

The Absolute Returns Portfolio fell 1.2% last week, paring total returns since inception down to 42.3%. Berkshire Hathaway was the sole gainer (+0.3%) while SPDR Gold MiniShares Trust (-3.8%), ChinaAMC Hang Seng Biotech ETF (-2.9%) and Alibaba (-2.3%) were the biggest losers.  

The AI Portfolio also ended lower, falling by 1.4% over the same period. Total returns since inception stand at 3.3%. The two gaining stocks were Twilio (+1.4%) and ServiceNow (+0.4%). On the other end, Naura Technology (-5.4%), Alibaba (-2.3%) and Marvell Technology (-1.7%) were the biggest losers.

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views  to influence readers to buy/sell stocks. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.

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