Malaysia’s equity market has taken a breather after a months-long winning streak. The long-dormant market rallied over the past eight months, only to decline more than 4% since the beginning of September. Nonetheless, the market remains on the recovery path amid strong infrastructure activity, foreign investor interest, and government support.

The correction reflects growing wariness among investors over a row of macro risks, including the Middle East conflict, other geopolitical uncertainties, and renewed worries about domestic inflation, which all suggest more volatility ahead.

Still, the FTSE Bursa Malaysia KLCI Index has gained more than 10% since the year started, even surging by 15% to a record high at one point, bolstering analyst estimates that the market is headed for its best-performing year since its short-lived uptrend at the end of 2020.

Hot IPO market

The market revival is anchored on a sizzling initial public offering (IPO) market. The first nine months of 2024 witnessed 35 IPOs raising 25.9 billion ringgit (US$5.91 billion), eclipsing the 32 IPOs for the entire 2023. As well, the money raised during the period is almost twice that for 2023, according to Bursa Malaysia. The ACE market for growth companies alone has recorded 31 new listings as of October 2024.

As of Q3 2024, despite one new listing recording a loss, IPOs were traded at an average of 49.5% premium, compared with 42% at the end of 2023.

Top gainers come from the construction, energy and technology sectors, Bursa Malaysia says in its IPO report. Building service provider KJTS climbed as much as 58% since its debut at a 63% premium in January, and is currently trading at least 30% above the listing price.

Power cable manufacturer Master Tec’s share price peaked in May, tripling its listing price of 39 sen. Although it has been trading lower after hitting a record high, the share price is still double compared to its debut.

The broader market itself has recovered from a three-year downturn. Since the start of the year, the construction index has risen by half, the utility index is up 20% after soaring 40% in July, and the financial service sector is up 15%, after a 22% surge. All three indices are at their five-year highs.

Mega infra projects

Much of the stock market rally was fuelled by government efforts to step up the country’s infrastructure development. Projects across housing, railways, data centres and water systems are in the pipeline. The Malaysian Investment Development Authority approved 60.1 billion ringgit in manufacturing investments in the first half of 2024, up 34.1% from the same period last year.

Mega infrastructure projects have driven the stock performance of related companies. Infrastructure and engineering major Gamuda Berhad has seen its share price skyrocket more than 80% year-to-date after its subsidiary won the contract to build the Penang Light Rail Transit, boosting its share price after being in the doldrums since 2018.

Investment firm WCT’s share price soared as much as 70% after its construction arm secured a 249.7 million ringgit contract for the North-South Expressway project in June. IJM Construction’s stock also got a boost from Telekom Malaysia’s construction of a data centre with a capacity of as much as 200 megawatts. Its share price is up more than 60% year-to-date.

Foreign interest  

Foreign investment is also supporting the market’s frenzied activity. In the first half of 2024, foreign institutions increased their average daily trade value to 1.1 billion ringgit from 513 million ringgit in 2023, according to Bursa Malaysia. This staggering amount of equity traded by foreign investors has made them the country’s largest investor group in terms of trading value. By comparison, the average daily trade value between 2020 and 2023 was only 600 million ringgit.

From being the largest net sellers in Bursa Malaysia in 2023, foreign investors became the largest net buyers in January, February and May. That pushed their holdings to 35% of the traded shares, compared with 29% in 2023.

However, foreign investors turned into net sellers in the last trading week of October. Foreign outflows reached 1,709 million ringgit in the trading week ended November 1, reversing weeks of buying streaks after the August sell-off triggered by global fears over sluggish economic growth. Most affected by the capital outflow were the financial service and utility sectors.

Despite the weakening momentum, Manulife remains upbeat that Malaysia’s equity market will still outperform its peers, given the impact of the frenetic development of data centres and other infrastructure projects and the favourable policies that are further boosting the job market and GDP estimates.

AmInvest, the investment unit of AmBank Group, remains cautious on the market outlook from November onwards, given the geopolitical uncertainties. Meanwhile, it believes that the Fed rate cuts and China’s economic stimulus measures can partially counteract the pressures.