This article first appeared in Forum, The Edge Malaysia Weekly on January 19, 2026 - January 25, 2026

The S&P 500 has returned approximately 15% year to date (YTD) while Korea’s Kospi surged nearly 70% from its 2022 lows on the back of artificial intelligence (AI)-driven semiconductor demand. The KLCI, meanwhile, has delivered single-digit gains and Bursa Malaysia continues to see more delistings than new entrants.

The conventional justification points to dollar strength and emerging market risk aversion. But the USD is down almost 10% this year against a basket of global currencies. A more structural reason deserves attention: the research coverage gap that leaves most Malaysian stocks invisible to institutional capital — and Singapore’s aggressive policy response that Malaysia has yet to match.

Of the approximately 1,050 companies listed on Bursa Malaysia, almost three-quarters have zero analyst coverage, based on data from Refinitiv I/B/E/S. This is not a Malaysian problem alone. Across Asean, around the same proportion of listed companies lack coverage.

Singapore is receptive to this issue. In July 2025, the Monetary Authority of Singapore committed S$50 million (RM157 million) to enhance its Grant for Equity Market Singapore (GEMS) scheme, specifically targeting research coverage of mid- and small-cap companies. The enhanced programme pays research firms up to S$6,000 per published report on under-covered stocks, up from S$4,000 previously. Importantly, it allows both sell-side and buy-side firms to submit reports. The former can generate flows and commissions from trading (even if their recommendations do not perform well) and the latter typically put their money where their mouth is through direct fund allocations aligned with their views. The grant also extends to pre-initial public offering (IPO) companies to build coverage pipelines before listings. This sits within a broader S$5 billion Equity Market Development Programme, Singapore’s most aggressive capital markets intervention in a generation.

Malaysia’s equivalent is Bursa RISE+, launched in April 2025 as a successor to Bursa RISE. The programme aims to enhance the visibility of 60 publicly listed companies over two years, plus 40 private or pre-IPO firms annually. The earlier Bursa RISE initiative, which ran from 2022 to 2024, covered 60 companies and reported that a little more than two-thirds continued receiving research coverage after the programme ended.

But the maths is on a different scale. At 30 public companies per year, and even assuming only half of Malaysia’s uncovered stocks merit institutional research, the current approach would take over a decade to meaningfully close the gap. Singapore’s model, direct per-report funding that scales with output, can expand coverage as research capacity grows.

The coverage gap creates a cycle that Malaysian capital markets practitioners know well. Companies without analyst coverage struggle to attract institutional attention, regardless of their fundamentals. Fund managers face career risk buying stocks without third-party validation and risk flying blind, especially international investors without boots on the ground. Lower institutional interest reduces trading volumes, widens spreads and depresses valuations. Not to mention that, typically, institutional investors also provide another form of corporate governance.

The coverage gap matters particularly for Malaysia’s ambitions as a global hub for Islamic finance. The Securities Commission Malaysia lists 850 shariah-compliant securities on Bursa Malaysia, approximately 80% of all listings. Many lack analyst coverage.

For Islamic fund managers, this can create an uncomfortable constraint: restrict portfolios to the 80 to 100 large-cap shariah stocks with coverage, sacrificing diversification, or venture into uncovered names. International Islamic funds from the Gulf states often filter for analyst coverage as a first screen, excluding most of Malaysia’s compliant universe before fundamental analysis begins.

Analysis of Asean equity returns over the past five years shows that covered and uncovered stocks delivered nearly identical average returns of approximately 40%. But the dispersion tells a different story. Return volatility among uncovered stocks runs 48% higher than covered names. The 10th to 90th percentile range of YTD returns spans -33% to +122% for uncovered stocks, versus -15% to +114% for covered ones. Both the upside and downside are amplified in the parts of the market that institutional capital cannot see. It reflects the scant information infrastructure and where both risks and opportunities lie.

The approximately 750 uncovered companies on Bursa Malaysia are not all penny stocks or shell companies. They include manufacturers, technology firms, consumer businesses and service providers. Many are profitable, growing and reasonably valued. They remain invisible not because they lack quality but because traditional research economics cannot reach them.

The economics that created this gap are structural and understanding why matters for any policy response. Research coverage follows liquidity. Academic research documents this relationship as an illiquidity premium, meaning less liquid stocks must offer higher expected returns to compensate investors for trading costs and information asymmetry.

Brokerages generate revenue from trading commissions, which are positively affected by institutional order flow. A stock trading RM10 million daily attracts coverage because the research pays for itself through commissions. A stock trading RM1 million daily does not, regardless of whether the underlying business is sound.

This creates a size threshold. Employing a single equity research analyst can run from RM700,000 to RM900,000 annually once you factor in salary, support staff, data subscriptions and compliance overhead. Each analyst covers 10 to 15 stocks. For a mid-cap Malaysian company with RM500 million market capitalisation and RM1 million to RM2 million average daily trading value, commission revenue from institutional activity rarely exceeds RM30,000 annually, a fraction of coverage cost. The economics only work above roughly RM1 billion market cap, which excludes most of Bursa Malaysia.

This structural unprofitability worsened after Europe’s MiFID II regulations forced the unbundling of research from trading commissions in 2018. Global research budgets fell 20%-30%, with analyst coverage declining 6%-10% overall and disproportionately more for emerging market and small-cap stocks where economics were already marginal.

The coverage that disappeared is not coming back through market forces alone and is worth incentivising. Research coverage generates positive externalities beyond the private returns to brokerages and fund managers. Analysts serve as external monitors, flagging accounting irregularities and governance lapses that might otherwise go unnoticed. Covered companies face more scrutiny, which deters fraud and self-dealing. These are public goods — benefits that accrue to the market as a whole, not just to the parties producing or consuming the research — and contribute to overall capital formation in the region.

Singapore’s GEMS enhancement offers several design features worth examining. First, per-report funding that scales with output rather than curating a fixed list of companies. This allows coverage to expand as research capacity grows. Second, talent co-funding that builds analyst capacity rather than just redistributing existing coverage among the same companies. Third, pre-IPO coverage that builds the research ecosystem before companies need it, reducing the information asymmetry that disadvantages new entrants. This spills over into supporting the venture capital market as well.

Singapore’s scheme also now includes digital platforms and systematic research providers, a nod towards technology-assisted coverage. The premise is that algorithmic approaches might extend research at lower marginal cost. Machine learning systems can process financial statements and flag anomalies across large universes of companies, and there is genuine value in automating routine monitoring tasks. But the application of AI to equity research faces significant challenges: large language models are prone to numerical errors (particularly problematic for financial data); the signal-to-noise ratio in financial markets is far lower than in domains where AI has succeeded; and the feedback loops required to train effective systems are slow and ambiguous. Reinforcement learning, which has transformed game-playing and robotics, struggles in financial applications precisely because market outcomes provide noisy, delayed signals that make learning difficult. And that is a feature of the financial markets, not a bug.

Bursa RISE+ represents a step in the right direction. The question is whether the current programme is sufficient and whether Malaysia will consider the design elements that give Singapore’s approach more room to grow. The current divergence in policy designs between Singapore and Malaysia will likely widen the information gap between the two markets. For Malaysian investors and policymakers, the question is not whether the coverage gap matters — the academic evidence is clear that it does. The question is whether the current response matches the scale of the problem.

Ben Charoenwong is an associate professor of finance at Insead and co-founder of Chicago Global

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