KUALA LUMPUR (Dec 19): The lack of large-capitalisation companies with sufficient liquidity is one of the major challenges making Bursa Malaysia less attractive to foreign investors compared to its regional peers, said Permodalan Nasional Bhd (PNB).

President and group chief executive Datuk Abdul Rahman Ahmad said that as foreign investors favour larger companies with adequate liquidity, Malaysia has slightly “lost out” to North Asian markets such as China, South Korea, Japan and Taiwan.

"The challenge remains how to persuade the companies, particularly larger firms, to list on the local stock market, as currently, there are many initial public offerings (IPOs), but mainly on the ACE market, and involved relatively small companies," he told an editors' briefing on Thursday.

Citing an earlier announcement by Finance Minister II Datuk Seri Amir Hamzah Azizan, Abdul Rahman noted that new listings had been very positive, with the IPO pipeline raising nearly RM30 billion from 60 listings this year.

He added that while the inflow of new funds from these companies was encouraging, it had been offset by foreign outflows from the equity market, which totalled about RM20 billion year to date (YTD) as of early December 2025.

"What we need are larger companies, because foreign investors generally cannot invest in small firms. They require bigger companies with enough liquidity.

"Malaysia still lacks large-sized companies that are growing and generating good returns on equity (ROEs)," he said.

As a result, PNB urged local listed companies to improve performance by delivering stronger ROEs, earnings growth and market-friendly practices, such as enhancing shareholder value and offering higher dividends, to attract foreign investors back to the domestic equity market.

To drive stronger corporate growth, Abdul Rahman suggested that local regulators emulate approaches adopted by Japan and South Korea.

He cited Japan as an example, noting that the Tokyo Stock Exchange applies reputational pressure on companies with low price-to-book (P/B) ratios through disclosure requirements, where activist shareholders then independently use these disclosures to push for higher ROEs and P/B ratios.

"South Korea has also done a similar programme. If we can adopt some of these measures, I believe it would help," he said.

Describing Malaysia’s equity market as having gone through a “lost decade” since 2014-2015, Abdul Rahman expressed hope that such initiatives would help revitalise the local stock market.

On market performance in 2025, Abdul Rahman said that despite a sharp decline in April due to the US tariff announcement, global stock markets have recovered well, mainly supported by artificial intelligence-driven investments.

"Perhaps, we could argue that 2025 is a transient year [for Bursa Malaysia], but the key [question is whether] we can deliver better corporate [performance] and shareholder [structures], because that is the only way to attract foreign funds," he said.

Looking ahead to 2026, Abdul Rahman said analysts are bullish on Malaysia, as they felt that the local bourse appears to have bottomed out, with foreign ownership of the equity market at only about 18.7%.

While he did not disclose a specific 2026 forecast for the benchmark FBM KLCI, he said the market is expected to benefit from increased tourism activity during Visit Malaysia 2026 as well as strong underlying fundamentals, including the ringgit and economic growth.

“The Finance Ministry has projected economic growth of around 4.0% to 4.5% next year, and our in-house forecast is also at the higher end of that range. We are confident that the Malaysian economy will grow at about 4.5%.

"So basically, I think the underlying economy is better," he said.

On PNB’s investment portfolio going forward, Abdul Rahman said the asset manager believes it needs to continue diversifying, particularly when foreign markets are performing better than the domestic market.

For example, he said the KLCI's YTD growth was -0.3%, a sharp contrast to the roughly 10% year-on-year growth seen in the 90s.

The local exchange's performance has also lagged its regional peers, with Singapore rising over 21% YTD and Indonesia gaining over 22% YTD, he said. Over the past five years, the US and Japanese markets have each risen by nearly 13%, while Taiwan has grown by around 14%, he added.

Nonetheless, he said diversification also involves expanding into other asset classes, such as fixed income, which he described as extremely important.

“Historically, our exposure to fixed income has been relatively low. While interest rates remain elevated and financing costs are high, fixed income provides stability, as it does not fluctuate as much as the equity market and helps to enhance portfolio resilience,” he said.

“So diversification is a big thing for us, and we will do it judiciously,” he added.

According to Abdul Rahman, PNB’s overseas investments currently account for about 27% of its portfolio, with the remaining 73% invested domestically.

Read also:
PNB declares RM10.4b in dividends or 5.75 sen a unit for flagship ASB

Uploaded by Tham Yek Lee