KUALA LUMPUR (April 22): The Securities Commission Malaysia (SC) said the risk of a sudden and large-scale exit of foreign investors from the local bourse remains low.
In a box article titled “Trends in local and foreign investors” in its “Capital Market Stability Review 2025” report, the regulator highlighted that the mix of domestic institutional investors helped absorb selling pressure and reduce the impact of foreign outflows.
During the year in review, local institutional investors recorded a participation rate of 41.34%, while local retail investors saw a lower participation rate of 17.58%.
“While the market experienced foreign outflows during the year, the domestic market’s diversified investor base continued to provide resilience against sudden shifts in investor sentiment,” said the regulator.
In a worst-case scenario where all non-strategic foreign investors — whose holdings amount to RM132.06 billion or about one-third of total foreign holdings — exit the market, foreign ownership would drop to 14.47% from 19.02%.
Non-strategic foreign investors are investment managers that have shorter investment horizons while strategic foreign investors are parents or holding companies that are based outside of Malaysia.
Having said that, the SC reiterated that the likelihood of this worst-case scenario happening is unlikely, noting that even total outflows during the Covid-19 pandemic market crash of 2020 were much smaller at RM13.2 billion.
Cumulative net foreign outflows reached RM22.32 billion as at end-December last year, as foreign investors reallocated funds amid differing growth trends between developed and emerging economies, alongside uncertainties surrounding US trade policies.
Foreign investors were still actively trading in the market, said the SC, as noted by their increased participation in Bursa Malaysia, which rose to 41.08% from 36.2% in the year prior. However, overall foreign ownership of Malaysian equities declined to 19.02% as at end-2025.
Bond inflows return as foreign investors seek safer assets
Foreign investors returned as net buyers of Malaysian bonds in 2025 after net selling in the previous year, as global uncertainty encouraged a shift into relatively safer fixed-income assets.
Foreign bond holdings stood at 13.37% as at end-2025, slightly below the five-year average of 13.71%.
Flows were uneven through 2025, with stronger inflows in May and June but occasional outflows amid cautious sentiment, including concerns over global trade developments stemming from the US reciprocal tariffs.
Foreign holdings remained concentrated in government securities, with Malaysian Government Securities (MGS) accounting for 75.11%, followed by Government Investment Issues (GII) at 17.3%, and smaller allocations in corporate bonds and short-term instruments.
The SC noted that short-term investors made up about RM133.14 billion, or nearly half of foreign bond holdings. In a stress scenario where these investors exit, foreign ownership of government bonds could fall to 11.23%.
It said this outcome is also unlikely, pointing out that the largest recorded bond outflow, which was RM31.1 billion during the period around the 2016 US presidential election, was significantly smaller than the simulated scenario.