Malaysian Markets Experience Remarkable Recovery and Strategic Developments

Investor Confidence Returns in Malaysian Equities

In 2024, Malaysia’s equities and currency markets have witnessed their most significant recovery in years, showcasing a renewed investor sentiment after a prolonged period of political uncertainties that previously hampered confidence in business and economic policies. The benchmark FBM KLCI index recorded a remarkable 12.58% increase during the year, marking its best annual performance since 2010, as it climbed back to levels not seen since prior to the challenges of 2019, when the market was labeled "the world’s worst major market."

One notable milestone of this rally was the market capitalization of Malaysian stocks, which for the first time in May breached the RM2 trillion mark, reflecting a reinvigorated economic outlook. This optimistic sentiment has largely been attributed to robust corporate earnings reports, a resurgence in foreign investment inflows, and the surprisingly positive trade data that has been coming out of the country.

Companies such as YTL Power International Bhd, Tenaga Nasional Bhd, and CIMB Group Holdings Bhd have played pivotal roles in this recovery. At the end of December 2024, the benchmark index was trading at a forward price earnings ratio (PER) of 15.7 times, significantly higher than its three-year average of 14.3 times, indicating a growing confidence in the economic recovery.

Another crucial development came in the form of a strengthened Malaysian ringgit, which rose by 11.4% to an intra-year high of 4.124 against the US dollar in September. Although the currency later moderated to 4.472 due to slower interest rate cuts in the United States, it still represented a year-to-date increase of 2.84%. These improvements were aided by the proactive stance of Bank Negara Malaysia, which encouraged local businesses to repatriate overseas investment income and convert export revenues back to the ringgit.

While the year began on a tumultuous note with sharp declines in shares linked to prominent investor Datuk Dr. Yu Kuan Chon, the market was able to stabilize by February, setting the stage for the outstanding performance that followed.

Controversial Concession Extension and Privatization of MAHB

In March 2024, Malaysia Airports Holdings Bhd (MAHB) announced it had secured a 35-year extension of its concession to manage the nation’s 39 airports, extending its contract to 2069. Following this announcement, in May, MAHB revealed it had received an offer from a consortium led by Khazanah Nasional Bhd and the Employees Provident Fund (EPF) to take the airport operator private at RM11 per share.

The consortium includes partners such as Global Infrastructure Partners (GIP) and Abu Dhabi Investment Authority (ADIA). Under the proposed deal, Khazanah’s stake in MAHB would increase to 40% from 33.2%, while EPF’s stake would rise significantly to 30% from 7.9%, with ADIA and GIP holding the remaining portion. The Malaysian government is set to retain special share rights in MAHB.

However, the proposal has sparked controversy, particularly due to GIP’s ties to BlackRock, which has faced accusations concerning its involvement in various geopolitical issues, including concerns of complicity in the Palestinian situation. The Malaysian government defended its moves, asserting that increased privatization was necessary to enhance MAHB’s efficiency and performance.

Despite these claims, independent directors at MAHB stated in a December circular that the offer did not reflect the full potential of the company, given its recent positive performance and growth strategies. Contrastingly, an independent adviser, Hong Leong Investment Bank, recommended shareholders accept the offer, though they acknowledged it was undervalued compared to a fair valuation range of RM12.61 to RM13.71 per share.

U Mobile Leads 5G Expansion Amid Shareholding Scrutiny

In a surprising twist, the Malaysian Communications and Multimedia Commission (MCMC) in November tapped U Mobile Sdn Bhd to spearhead the country’s second 5G network deployment. The choice of U Mobile, a smaller operator compared to competitors, raised eyebrows and led to discussions regarding transparency and potential foreign influence, especially since Singapore’s state investment firm, Temasek, holds a 48.25% stake in U Mobile, complicating the matter further.

Following MCMC’s announcement, Temasek indicated it would lower its stake in U Mobile to 20% through a sale to Mawar Setia, a company associated with tycoon Tan Sri Vincent Tan and the King’s daughter, Tunku Tun Aminah Sultan Ibrahim. However, confusion arose as the foreign shareholding cap in Malaysia mandates that telcos limit foreign ownership to 49%, creating questions about the actual percentage Temasek retains.

Amidst scrutiny, Temasek clarified intentions and details surrounding the stake sale, but concerns over adherence to regulations and foreign influence remained prevalent in the ongoing discussions about Malaysia’s telecommunications landscape.

Sarawak’s Aspirations for Control over Gas Resources

Sarawak’s push for greater control over its extensive natural gas resources took center stage this year. The state aims for Petroleum Sarawak Bhd (Petros) to assume the role of gas aggregator, a position currently held by Petronas, the national oil company. This ambition was voiced by Sarawak’s Chief Minister, Abang Johari, as he outlined plans to harness gas resources for local energy needs at competitive prices.

The potential shift in gas management responsibilities has led to lively debates, as stakeholders consider its implications not just for Sarawak but for Petronas and the federal government dependent on Petronas’ dividends. With Sarawak’s oil and gas revenues reaching RM6 billion in 2023, up from RM2.11 billion in 2019, the stakes are high for all parties involved.

Prime Minister Datuk Seri Anwar Ibrahim has emphasized that while Sarawak seeks more authority, the arrangement should be mutually beneficial to maintain the integrity of the entire oil and gas ecosystem in Malaysia, particularly concerning capital investments from upstream to downstream operations.

Major M&A in Banking Sector as Teh Family Sells LPI Stake

A significant move in the banking sector occurred in October when Public Bank Bhd formally announced its acquisition of the entire 44.15% stake held by the family of its late founder, Tan Sri Teh Hong Piow, in general insurer LPI Capital Bhd. The RM1.72 billion deal, priced at RM9.80 per share, is Public Bank’s first major M&A activity since its acquisition of Hock Hua Bank Bhd in 2021. As part of the announcement, Diona Teh Li Shian, the youngest daughter of the late founder, disclosed plans to reduce the Teh family’s stake in Public Bank from 23.41% to 10% over the next five years, a move necessitated by regulatory caps under the Financial Services Act 2013. If realized, the family would maintain a significant interest as the second-largest shareholder behind the EPF.

As of now, Public Bank shares remain stable at around RM4.57, holding steady since the M&A announcement in October.

Surge in Data Centre Investments Reshapes Malaysian Real Estate

Malaysia is positioning itself as a burgeoning hub for data centre investments, with major global tech companies including Amazon Web Services, Microsoft, Google, and Oracle pledging over RM75 billion (US$16.9 billion) for development projects. This influx of capital is driving a remarkable surge in land deals across the country as companies look to establish their infrastructure in light of the growing demand for data storage and processing capabilities.

These developments not only represent significant economic growth for Malaysia but also reflect the broader trend of digitalization and the increasing reliance on technology across various sectors globally.

As Malaysia navigates these strategic developments, the progression in the equity markets, controversial privatisation efforts, telecommunications advancements, resource management aspirations, prominent mergers, and investments in technology sectors collectively signal a transformative year ahead for the nation.