Malaysian Equity Markets Experience Unprecedented Recovery in 2024

The Malaysian equity market is experiencing a notable resurgence, marking the most substantial recovery in years. Following a prolonged period of political uncertainty that hampered investor confidence and economic policies, 2024 has seen Malaysian equities and the national currency enter a robust phase. The FTSE Bursa Malaysia KLCI (FBM KLCI) index achieved an impressive 12.58% increase this year, representing its best annual performance since 2010. ## Breaking Records in Market Capitalization

In a significant milestone, the market capitalization of Malaysian stocks surpassed the RM2 trillion mark for the first time in May 2024. This rally was driven by multiple factors, including strong corporate earnings reports, renewed foreign investments, and an optimistic outlook on the nation’s economic trajectory, buoyed by better-than-expected trade data. Companies contributing notably to this upward trend include YTL Power International Bhd, Tenaga Nasional Bhd, and CIMB Group Holdings Bhd.

As of December 30, the benchmark index was trading at a higher valuation, with a forward price-to-earnings ratio of 15.7 times, compared to its three-year average of 14.3 times.

Currency Strength and Economic Confidence

In addition to equities, the Malaysian ringgit saw a significant increase, soaring as much as 11.4% to reach an intra-year high of 4.124 against the US dollar in September. Although gains were pared to a current exchange rate of 4.472 due to slower interest rate cuts in the U.S., the ringgit is still up by 2.84% year-to-date. This positive performance can be attributed, in part, to Bank Negara Malaysia’s encouragement for local businesses to repatriate overseas investment income and to convert export earnings back into the local currency.

While the start of the year didn’t promise such growth, with notable declines in shares linked to investor Datuk Dr. Yu Kuan Chon and a tightening of margin financing rules, stability returned by February, setting the tone for the rest of the year.

Controversies Surrounding MAHB’s Privatization

In corporate news, Malaysia Airports Holdings Bhd (MAHB) stirred controversy following the announcement that a consortium led by Khazanah Nasional Bhd and the Employees Provident Fund (EPF) sought to take the airport operator private at RM11 per share. Shortly after MAHB was granted a 35-year concession extension in March to manage the country’s airports, the offer raised concerns, particularly due to Global Infrastructure Partners’ (GIP) ties with BlackRock, a firm facing criticism regarding its investment practices.

Despite these concerns, the Malaysian government defended the strategic decision to privatize MAHB as a move to unlock its growth potential. On December 21, independent directors of MAHB publicly opposed the offer, stating it did not reflect the company’s full potential; this was in stark contrast to Hong Leong Investment Bank’s advice to accept the bid, which it deemed fair in light of MAHB’s historical share price performance.

U Mobile Gains Leadership Role in 5G Network Deployment

In a surprising development, the Malaysian Communications and Multimedia Commission (MCMC) appointed U Mobile Sdn Bhd to lead the deployment of the nation’s second 5G network. The decision came amidst speculation given U Mobile’s relatively smaller stature compared to other major mobile operators in Malaysia.

Concerns arose regarding transparency in the selection process and foreign influence, particularly as Singapore-owned Temasek holds a significant stake of 48.25% in U Mobile. Following the announcement, Temasek revealed plans to reduce its stake to 20% by selling a majority position to Mawar Setia, a venture involving noted tycoon Tan Sri Vincent Tan. Despite efforts to clarify ownership structures, questions linger about compliance with Malaysia’s foreign shareholding caps in telecommunications.

Sarawak Pursues Control of Gas Resources

In a bid to enhance local governance over its natural resources, Sarawak is pushing for petroleum firm Petroleum Sarawak Bhd (Petros) to become the aggregator of gas supply within the state. Historically overseen by the national oil conglomerate Petronas, Sarawak aims to leverage its extensive gas reserves to secure more control over pricing and distribution.

The push comes at a time when Sarawak’s oil and gas revenue has expanded significantly due to increased production and pricing strategies. However, federal considerations regarding Petronas’ operational impact and revenue contributions could complicate negotiations.

Public Bank’s Strategic Acquisition

Public Bank Bhd shocked investors with its acquisition of the Teh family’s substantial stake in LPI Capital Bhd for RM1.72 billion. This significant transaction not only marks Public Bank’s first major M&A deal since 2021 but also sets the stage for a strategic realignment of ownership, as the Teh family plans to reduce its holdings in Public Bank to 10% due to regulatory constraints.

Data Centre Investments Surge in Malaysia

Amidst these corporate developments, Malaysia is rapidly becoming a focal point for data center investments, with major technology firms, including Amazon Web Services, Microsoft, Google, and Oracle, collectively committing over RM75 billion to the sector. This influx of investments is resulting in a surge of land deals and is solidifying Malaysia’s status as a regional powerhouse in the digital infrastructure space.

As 2024 progresses, key developments in both corporate governance and market performance will undoubtedly shape the future landscape of Malaysia’s economy and its standing in the global market.