This article first appeared in Capital, The Edge Malaysia Weekly on February 2, 2026 - February 8, 2026

MALAYSIA has taken a step towards joining other Asian countries that have launched “value-up” programmes, initiatives aimed at raising corporate standards and boosting market performance, with the introduction of two alternative indices built on financial performance. They are the Bursa Malaysia Quality 50 Index (BMQ) and its shariah-compliant counterpart Bursa Malaysia Quality 50 Shariah Index (BMQ-S).

The launch of the BMQ and BMQ-S on Jan 12 marks a significant shift towards factor-based investing on the local bourse, as the benchmarks prioritise companies with consistent profitability, prudent leverage and higher-quality earnings. This represents a move away from the usual index heavyweights that are largely determined by size or market capitalisation, market participants say.

While narrower in scope than programmes introduced in Japan, South Korea and Singapore, the BMQ and BMQ-S are in line with regional momentum, offering a transparent, quality-focused framework that can similarly incentivise companies to raise standards and attract capital inflows.

“The BMQ and BMQ-S could be the precursor to the launch of a comprehensive value-up programme for Malaysia’s stock market by Bursa Malaysia soon, in our view,” CGS International analyst Winson Ng wrote in a note dated Jan 22. He cites Bursa Malaysia chief financial officer Azizan Abd Aziz’s statement that the exchange is in discussions with public listed companies for a proposed value-up programme for the local stock market.

According to a fact sheet on the Bursa Malaysia website, the BMQ and BMQ-S identify 50 listed companies — there is an overlap of 44 companies in the two indices — that score highly on financial strength rather than market size, screening constituents based on profitability, capital structure and earnings quality.

By using measures such as return on equity (ROE), gearing levels and operating cash flow relative to earnings, the indices position themselves as an alternative to traditional market-cap weighted benchmarks.

Market participants say the indices at their core represent a deliberate break from those that serve primarily as broad market barometers.

“Unlike existing indices, which are primarily market-cap-weighted benchmarks designed to track specific size segments, the BMQ intentionally excludes the FBM KLCI giants to highlight the ‘financially resilient’ mid-to-large caps,” Pheim Asset Management fund manager Khoo Zing Sheng says, noting that the indices intentionally exclude Malaysia’s largest index heavyweights to highlight financially resilient companies that may otherwise be overshadowed.

“While the existing indices act as broad market barometers where a stock stays in as long as it is large and liquid, the BMQ acts as a fundamental filter, effectively providing a ‘quality-screened’ universe for investors,” Khoo says.

Similarly, Tradeview Capital chief investment officer Nixon Wong describes the BMQ as “a factor index that tilts towards financially stronger companies, rather than a broad market barometer”, distinguishing it from indices such as the FBM Emas or FBM Mid 70, which are segmented mainly by market cap.

Areca Capital CEO Danny Wong says the indices bring visibility to “mid-to-large cap companies with strong financial fundamentals that usually fly under the radar of traditional cap-weighted indices”. He adds that historical back-testing shows “significant historical outperformance against the [FBM] KLCI”.

The specialised nature of the BMQ and BMQ-S is reflected in their relatively small market footprint. Bloomberg data shows that the index’s constituents account for about 8% of the exchange’s total market cap, reinforcing their positioning as style or thematic benchmarks rather than proxies for the overall market.

Khoo reckons this concentration should be viewed as a feature rather than a limitation.

“While the 8% market cap seems small, it essentially represents the top-performing tier of the market by stripping away the 30 largest blue chips and the thousands of lower-quality small caps to focus on elite mid-to-large caps like Frontken [Corp Bhd] ­(KL:FRONTKN) or United Plantations [Bhd] (KL:UTDPLT),” he explains.

“For fund managers, this makes it a meaningful benchmark for ‘quality growth’ mandates that prioritise fundamental health over mere size, though it does face institutional constraints. Larger funds might find it difficult to adopt it as a primary benchmark due to liquidity limitations in a 50-stock universe, but it remains a highly realistic and specialised yardstick for boutique funds, private mandates and factor-based ETFs ­(exchange-traded funds) that aim for quality-driven alpha rather than general market beta.”

Tradeview Capital’s Wong agrees that the indices are better suited as a style reference rather than a house benchmark. “[They are] realistic as a style benchmark, less realistic as a universal house benchmark. Too narrow to be market-representative, more to case-by-case use.”

Fund managers expect the BMQ and BMQ-S to broadly function as a reference tool in the initial stages.

“In our line of work, these will likely serve as a reference tool in the near term because institutional mandates are traditionally anchored to legacy indices like the FBM KLCI,” Khoo says. “For the BMQ to gain real traction as a practical benchmark, we need to see the launch of dedicated ETFs or unit trust funds that track it, providing the necessary liquidity for larger players to move in.”

While boutique managers may adopt the index more quickly to articulate differentiated strategies, he reckons that broader institutional uptake will require time and evidence of performance. Khoo says broader adoption will happen only when there is enough historical tracking data to prove it can consistently deliver alpha over a standard market-cap approach.

Similarly, Tradeview Capital’s Wong expects adoption to be closely tied to product development. “They can gain traction if there are more product launches like ETFs that need to make reference to a benchmark, for instance, a Quality Malaysia ETF.”

Areca Capital’s Wong says the index may be more relevant to private portfolios than to large institutional funds with extensive internal research and a larger universe for selection.

On portfolio construction, the interviewees agree that the BMQ and BMQ-S are technically feasible to replicate, given their 50-stock structure and Bursa Malaysia’s liquidity requirements. However, several caution against mechanical replication.

“Building a portfolio based on the BMQ is highly practical for retail or boutique funds, as it automates a ‘health check’ that favours cash-generative leaders while avoiding high-debt value traps,” Khoo says. He warns, however, that concentration risk is a key consideration. “Mirroring it exactly carries significant concentration risk as the top 10 holdings currently command a massive 65.7% of the index weight.”

He adds that the exclusion of banking heavyweights also implies a structurally higher tracking error. “By intentionally excluding the banking-heavy FBM KLCI, you will naturally face a high tracking error, potentially lagging the broader market during rallies led by financial stocks or large-cap GLCs (government-linked companies).”

Wong of Tradeview Capital is of the opinion that the indices’ focus on fundamentals could be attractive during periods of market stress. He describes their advantages as being a portfolio that is “easier to explain to investment committees and clients, especially in risk-off periods” while also helping investors move “away from the crowding effect as everyone else owns [FBM] KLCI stocks”.

Malacca Securities head of research Loui Low highlights another aspect: Quality screens often introduce sector biases and higher turnover as financial ratios evolve. To address this, he recommends a two-factor approach combining quality and momentum that balances financial resilience with market performance trends. With monthly rebalancing, the model will ensure greater adaptability and responsiveness to shifting market conditions.

According to Low, this strategy developed by M+ Global has delivered encouraging results, generating average monthly returns of 1.7% to 2.0%. The model has consistently outperformed the broader index, following its Factor Focus report in February 2024, reinforcing the effectiveness of systematic quality screens in portfolio construction, he says.

International investor interest in the BMQ and BMQ-S is expected to be selective, observers say.

Foreign investors may view the indices as a targeted access point rather than a broad market gauge, Khoo says, calling them “a specialised gateway for navigating the Malaysian mid-cap space”.

“By providing a transparent, rules-based framework focused on ROE and cash flow, Bursa is essentially ‘de-risking’ the market for foreigners who may be wary of the governance or debt levels in smaller emerging market stocks,” he explains.

Wong of Tradeview Capital cautions that global comparability remains an issue. “If our quality definition is narrow, international investors may treat it as a Bursa-flavoured quality proxy rather than a like-for-like equivalent comparison.”

Beyond investor usage, market participants see potential spillover effects on corporate behaviour. Khoo says the indices could incentivise companies to improve financial discipline in order to qualify as constituents.

“The launch of these indices is expected to trigger a positive cycle by incentivising listed companies to optimise their rule-based scores, specifically ROE, debt levels and cash flow conversion.”

He adds that increased visibility could help quality mid-caps graduate into larger indices over time, creating “a virtuous loop where better fundamentals lead to index inclusion, which attracts capital, drives valuation and ultimately raises the overall standards of the entire exchange”.

Wong of Tradeview Capital warns against over-exuberance, noting that such effects will depend on whether capital flows materialise. “The effect could be strongest when there is capital attached, such as flows from ETFs or mandates — just like ESG (environmental, social and governance) previously. Without that, it remains more reputational than financial.”

Still, investors are likely to pay attention if a larger number of leaders in Corporate Malaysia aspire for their companies to qualify as BMQ and BMQ-S constituents and work towards more ambitious financial targets to be seen as among the leading performers on financial metrics.

Low cites the example of Japan, where the Tokyo Stock Exchange introduced a major initiative in early 2023 that requires listed companies, particularly those with a price-to-book ratio of below one time, to disclose concrete plans for improving capital efficiency and boosting corporate value. Since its rollout, the Nikkei has surged by more than 80%, underscoring the impact of disciplined reforms on investor confidence.

South Korea followed with its Corporate Value-Up Program, launched in February 2024, to address the long-standing “Korea discount” — the undervaluation of domestic equities relative to global peers. The voluntary initiative encourages companies to strengthen governance and increase shareholder returns. The Kospi index has more than doubled since then, largely driven by perceived technology leadership as investors look for alternative artificial intelligence winners.

Singapore, meanwhile, introduced its Value Unlock programme last November. The initiative aims to encourage listed companies to optimise capital structures and enhance disclosure standards. Since its launch, the Straits Times Index has risen nearly 8%, signalling investor receptiveness to reforms that align corporate behaviour with shareholder value creation.

Investors interested in Malaysian equities will likely be keeping an eye on whether Bursa Malaysia’s talks with public listed companies on targets and the selection of relevant parameters will result in a broader programme that can further drive up value. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.