Malaysian Equities and Currency See Significant Gains Amid Political Stability

Investor Confidence Returns

In 2024, Malaysian equities and the national currency have demonstrated remarkable resilience and a significant turnaround from previous years marked by political turbulence. Following a period of uncertainty regarding business and economic policies, investor sentiment has markedly improved, contributing to the impressive performance of the FTSE Bursa Malaysia KLCI (FBM KLCI) index, which achieved a 12.58% gain—the best annual performance since 2010. This rebound is a notable recovery from a time when, in 2019, Malaysia was labeled as “the world’s worst major market.”

The resurgence in the stock market has allowed Malaysian stocks to surpass a market capitalization of RM2 trillion, a milestone reached in May. Strong corporate earnings, an influx of foreign investment, and positive trade data have underpinned this growth, fostering optimism about Malaysia’s economic future. Key contributors to this stellar market performance include firms such as YTL Power International Bhd, Tenaga Nasional Bhd, and CIMB Group Holdings Bhd.

Adding to the positive sentiment, the benchmark index is now trading at a higher valuation—15.7 times forward price-to-earnings ratio, compared to its three-year average of 14.3 times as of December 30, 2023. Furthermore, the Malaysian ringgit witnessed significant strength during the year, appreciating by as much as 11.4% against the US dollar, with an intra-year high of 4.124 in September, although it has since settled at 4.472.

Challenges and Resilience

While 2024 ultimately bore fruit for Malaysian equities, the year began on a tumultuous note. Early January saw substantial declines in stock prices linked to investor Datuk Dr. Yu Kuan Chon, notably with Rapid Synergy Bhd and YNH Property Bhd, which saw their values plummet by 95% and 85%, respectively. This prompted tighter margin financing rules following a notable sell-off of 16 stocks, causing a 11% drop in the FBM ACE Index in just three days. Despite these initial challenges, the FBM KLCI managed to contain its losses to just 0.8% during this period, showcasing resilience before stability returned in February.

Controversial Moves in Airport Management

In an important move for the aviation sector, Malaysia Airports Holdings Bhd (MAHB) received a 35-year extension to its concession to manage the country’s 39 airports, pushing its operational capabilities to 2069. Shortly after, the company announced a proposal to go private at an offer price of RM11 per share from a consortium of investors led by Khazanah Nasional Bhd and the Employees Provident Fund (EPF).

With this proposal, Khazanah’s stake in MAHB would rise from 33.2% to 40%, while the EPF would increase its ownership from 7.9% to 30%. The deal has been met with public dissent over the involvement of Global Infrastructure Partners (GIP) and Abu Dhabi Investment Authority (ADIA), citing ethical concerns due to GIP’s links to BlackRock—a firm accused of pro-Zionist sentiments. Despite these protests, the government has defended the privatization as a strategic initiative to enhance MAHB’s potential.

Amidst this controversy, MAHB’s independent directors publicly declared on December 21 that the offer did not adequately reflect the company’s potential, even as an independent adviser recommended acceptance of the offer based on its attractiveness relative to MAHB’s historically suppressed share price.

Telecommunication Challenges

The Malaysian Communications and Multimedia Commission (MCMC) stirred discussions in November when it announced that U Mobile would lead the deployment of the nation’s secondary 5G network. This decision has raised eyebrows, especially as U Mobile is primarily owned by Temasek Holdings, a state-owned investment firm based in Singapore.

Concerns surrounding transparency and foreign ownership in vital telecommunications infrastructure led to increased scrutiny and confusion regarding U Mobile’s shareholding. Following MCMC’s announcement of the new strategic partnership, ST Telemedia, a subsidiary of Temasek, announced plans to reduce its stake in U Mobile to 20% while transferring a majority share to Mawar Setia, a company with ties to local figures. This move led to speculation about whether foreign investment limits, which cap foreign shareholder stakes in telecommunications firms at 49%, could potentially be breached.

Sarawak’s Gas Resource Efforts

In a significant push for local control of gas resources, Sarawak has sought to establish Petroleum Sarawak Bhd (Petros) as the primary gas aggregator within the state, taking over functions currently handled by national oil company Petronas. This move comes amidst Sarawak housing approximately 60% of Malaysia’s gas reserves and aims to enhance the utilization of gas in power generation across the state.

The discussions revolve around the state’s desires for greater independence in managing its gas supply and the broader implications for Petronas and the federal government, which heavily relies on dividends from the company for revenue.

Significant Transactions in the Banking Sector

In October, Public Bank Bhd announced its intention to purchase a 44.15% stake held by the family of its late founder, Tan Sri Teh Hong Piow, in LPI Capital Bhd for RM1.72 billion. This acquisition marks the most notable merger and acquisition activity for the bank since its previous purchase of Hock Hua Bank Bhd in 2021. Diona Teh Li Shian also outlined plans for the Teh family to gradually divest its stake in Public Bank to comply with legal regulations governing individual ownership in financial institutions. This dramatic reshaping of their stake reflects a response to the Malaysian Financial Services Act 2013, which mandates that individual stakes be capped at 10%.

Data Center Investments Surge

Notably, Malaysia has emerged as a favored destination for data center investments, with global giants such as Amazon Web Services, Microsoft, Google, and Oracle collectively committing over RM75 billion to develop their infrastructures. This surge in investment speaks volumes about Malaysia’s growing prominence in the tech landscape and its strategic positioning for digital innovation in the region.

As 2023 closes, the landscape for Malaysian equities, corporate governance, and sectoral investments presents an evolving narrative of resilience, transformation, and opportunity founded upon a return of investor confidence and strategic advancements across industries.