While Prime Minister Anwar Ibrahim’s government has repeatedly touted Malaysia as a high-value destination for foreign investment, international portfolio capital continues to leave the country’s financial markets.
The Malaysian economy is not at risk of hitting any major bumps in the coming months, but the country’s tepid growth prospects and cautious political outlook are why foreign investors have been pulling out from its financial markets, economists and analysts say.
As of Sep 30, net portfolio equity outflow from the Malaysian stock market this year hit RM16.4 billion (U$3.9 billion), about four times the full-year outflow of RM4.2 billion in 2024, said RHB Research in a note earlier this month.
According to Bank Negara – the country’s central bank – the non-resident outflow from the stock market in 2023 was RM2.3 billion.
Foreign shareholding now stands at around 19 per cent of total market capitalisation and is at an all-time low, CIMB Research was quoted as saying in reports this month. The shareholding ratio has fluctuated between 22 per cent and 23 per cent for some years.
Bonds are bleeding too: September saw RM6.8 billion in net foreign selling, reversing a brief inflow in August, according to RAM Rating Services.
RAM added in a note last week that foreign holdings in Malaysian bonds have already edged lower in the first half of this month, falling to RM285.8 billion as at Oct 14, down from RM287.0 billion as at end September.
Bank Negara figures show that foreign holdings stood at about RM275 billion at the start of January, rising to a high of RM302 billion at end May this year, before retreating to current levels.
“It is a worrying trend,” former finance minister Tengku Razaleigh Hamzah told CNA of the haemorrhaging of foreign capital from the Malaysian financial markets.
“It is clear that foreign investors don’t have an upbeat long-term view on Malaysia, (with) little faith in … the management of the economy,” he added.
The exodus of foreign portfolio capital is a region-wide phenomenon because of the uncertainty in the international economy and concerns over new tariffs that the United States government has been threatening, investment analysts said.
Indonesia, Philippines and Thailand are also losing portfolio money from a broad cross-section of portfolio investors, comprising private equity interests, hedge funds, and large international pension and insurance companies.
But Malaysia’s outflow has been one of the sharpest among members of the Association of Southeast Asian Nations (ASEAN), raising serious concerns at a time when competition for limited overseas capital is becoming more intense among regional economies.
SLOWDOWN
The Malaysian economy, ASEAN’s fifth-largest, is expected to grow at a slower pace of around 4.2 per cent next year, down slightly from the projected 4.5 per cent expansion in gross domestic product (GDP) this year, according to Kenanga Research.
The lukewarm outlook is despite the country’s success in attracting direct investments in key sectors of the economy.
According to the Malaysian Investment Development Authority (MIDA), the country attracted RM378.5 billion of approved investment in 2024, up 14.9 per cent from the previous year.
For the January to June period this year, MIDA noted that approved investment hit RM190.3 billion, up 18.7 per cent from the same 2024 period.