This article first appeared in Capital, The Edge Malaysia Weekly on May 18, 2026 - May 24, 2026

FOREIGN funds have turned net buyers of Malaysian equities so far this year, with financial services, industrial and plantation being the key beneficiaries, buoyed by a more resilient currency and foreign direct investments (FDIs).

In 2025, net foreign selling amounted to RM22.3 billion, the largest since 2020. However, Malaysia was not the only market that saw huge foreign outflows last year. Regional markets were similarly affected, owing largely to uncertainties surrounding US trade policies as well as portfolio adjustments by foreign funds amid differing growth trends between developed and emerging economies. In particular, Taiwan and South Korea experienced net foreign outflows of US$6.99 billion (RM27.5 billion) and US$4.4 billion respectively.

Net foreign outflows of RM2.34 billion and RM4.21 billion were also recorded in 2023 and 2024 respectively, following net inflows of RM4.38 billion in 2022.

Year to date (YTD), foreign investors have been net buyers of more than RM3 billion in Malaysian equities. During the period, industrial products and services, financial services and plantation have recorded cumulative net foreign inflows of RM1.67 billion, RM1.4 billion and RM1.18 billion respectively.

However, telecommunications and media registered the largest net foreign selling at RM670.1 million, followed by consumer products and services (RM619.1 million) and construction (RM495.4 million).

Among FBM KLCI constituents, Press Metal Aluminium Holdings Bhd (KL:PMETAL) saw nearly RM900 million of net foreign buying since the start of the year, benefiting from aluminium supply shocks that have kept prices near record highs amid persistent demand-supply imbalances.

Coming in second is MISC Bhd (KL:MISC), which attracted net foreign buying of RM766 million.

Banking stocks such as AMMB Holdings Bhd (KL:AMBANK), RHB Bank Bhd (KL:RHBBANK) and Public Bank Bhd (KL:PBBANK) also drew strong interest, with net inflows of RM709.2 million, RM702.2 million and RM531.6 million respectively.

In contrast, Gamuda Bhd (KL:GAMUDA), Malayan Banking Bhd (KL:MAYBANK) and 99 Speed Mart Retail Holdings Bhd (KL:99SMART) were among the big-cap stocks that suffered hefty foreign selling, with net outflows of RM918 million, RM806.7 million and RM559.8 million respectively.

Foreign shareholding in Malaysian equities stood at 19% in April 2026, little changed from 19.02% at end-2025.

While foreign investors entered the market, local institutional investors were net sellers, offloading RM1.29 billion worth of equities YTD. Retail investors were also net sellers, with outflows totalling RM2.09 billion.

Analysts believe the ringgit’s strength, coupled with robust FDIs, will continue to attract foreign funds into the local stock market.

MBSB Research head Imran Yassin Md Yusof says Malaysia’s exposure to the technology, oil and gas, and commodity sectors has continued to attract foreign interest despite the ongoing conflict in the Middle East, which has entered its third month.

“Our market was the laggard last year; so, we have seen a lot more interest from foreign funds this year. Malaysia is one of the most attractive markets in Asean, given its favourable valuations as well as political and economic stability,” he tells The Edge.

Furthermore, he points out that Malaysia was among only three markets tracked by MBSB — alongside Taiwan and South Korea — that saw net foreign inflows in April. Imran observes that the artificial intelligence (AI) wave has benefited technology stocks, and the current interest rate environment, particularly in the US, remains supportive of foreign fund flows into Malaysia.

“As long as interest rates, especially the US federal funds rate, remain at current levels and the ringgit stays stable, the environment will remain favourable for foreign inflows.

“The market consensus now is that there will be no rate hikes. But the downside risk would be renewed US rate hikes, which could affect fund flows into Malaysia.”

Typically, higher interest rates in deve­loped markets and a stronger US dollar tend to weigh on fund flows into emerging markets as investors seek higher returns in developed markets.

Kenanga Research head Peter Kong believes Malaysian stocks could see more structural interest over the next one to two years, supported by the “My Value Up” programme as well as the proposal to expand the FBM KLCI to 50 constituents from the current 30.

“Taken together, these could serve as catalysts for mid- and large-cap stocks,” Kong says.

The “My Value Up” programme, launched by the Securities Commission Malaysia under the Capital Market Masterplan (2026-2030), aims to improve value creation, strengthen financial performance and raise the visibility of listed firms.

Similarly, Sim Eu Jin, head of investment at CGS International Wealth Management Malaysia, says the “My Value Up” programme is a step in the right direction to improve the quality of listed companies. 

“For example, compelling listed companies to close holding company discounts, lift dividend payout ratios, and execute buybacks would change the ROE [return on equity] trajectory for the index and justify a rerating from foreign value-oriented funds.” 

Sim expects the foreign inflow momentum to be tactically sustainable as long as the US dollar stays soft and the data centre capex cycle remains credible. “The data centre and AI infrastructure narrative, CPO [crude palm oil] price resilience supporting plantation earnings, and Malaysia’s positioning as a geopolitical neutral country amid US-China tensions are also likely narratives driving foreign inflows,” he explains.

Areca Capital Sdn Bhd CEO Danny Wong believes Malaysia’s solid economic fundamentals and growing exposure to sectors such as semiconductors, AI and data centres make it an attractive market for foreign investors.

“This mega trend remains intact, and we will continue to do well in this. Of course, banks, as a proxy for the economy, are still performing well,” Wong says.

He acknowledges the risk of a correction in global equity markets after a strong AI-fuelled rally, but notes that AI-related sectors remain fundamentally robust, with real demand driving growth. “Malaysia benefits from being part of the AI supply chain, even if it is not at the forefront of development. There could be tactical portfolio adjustments, rather than significant selling.”

Given the still-low foreign shareholding in local stocks, he says there is room for sustained foreign inflows, supported by robust corporate earnings.

Asked what could trigger a reversal in foreign fund flows, Kenanga’s Kong says external-oriented sectors such as industrials — and, to a lesser extent, technology and plantation — could be more vulnerable, particularly companies with weaker dividend payouts.

Inflationary pressures also need monitoring, he cautions, given that the Producer Price Index (PPI) has started to hit an inflection point, which could dampen consumer sentiment. PPI tracks inflation at the wholesale level before it reaches consumers, and data shows that it rose 4.1% month on month in March this year, marking the biggest monthly jump in more than two decades.

While current cost increases remain manageable,  Kong warns that secondary effects from rising costs could prolong negotiations for contracts and projects, potentially affecting revenue recognition.

Malaysia’s bond market has also continued to attract foreign interest amid ongoing geopolitical tensions in the Middle East. UOB Global Economics & Markets Research says this has helped keep bond yields stable while supporting the ringgit, which was trading at 3.9315 against the greenback as at 5pm last Thursday, representing a YTD gain of 3.1%.

YTD net foreign inflows into bonds totalled RM8.4 billion, with foreign holdings of government bonds (Malaysian Government Securities and Government Investment Issues) accounting for 21.6% of total government bonds outstanding.

A notable structural shift has been the growing share of Malaysian government bonds held by foreign central banks or governments, which reached a record high of 36.1%.

In a May 11 note, UOB says these investors tend to have longer investment horizons, which enhances market stability and reduces susceptibility to abrupt capital outflows during periods of risk aversion. This compares to holdings of asset managers (32.4%), pension funds (15.4%), banks (14.3%), insurance companies (1.5%) and others (0.3%).

Looking ahead, UOB says Malaysia’s firm fundamentals, resilient currency trajectory, and stable policy framework should continue to underpin demand for domestic bonds and equities, with scope for further inflows if global volatility persists and yield differentials remain favourable.

Kenanga Research notes that Malaysia’s bond market remains supported by solid macro buffers, including a firm ringgit backed by stable sovereign credit profile, manageable inflation and Bank Negara Malaysia’s decision to keep the overnight policy rate unchanged at 2.75%. The policy rate has remained at that level since July 2025.

Overall, YTD net foreign inflows into Malaysia’s equities and debt markets exceeded RM11 billion in the first four months of the year — nearly four times the RM3.1 billion recorded in the same period last year.

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