Malaysian Equities and Currency See Unprecedented Growth in 2024
Investors Reclaim Confidence Amid Political Recovery
As Malaysia enters 2024, a notable revival in investor sentiment has been witnessed, attributed to the country’s emergence from a prolonged phase marked by political turbulence that had cast doubt on business and economic policies. The resurgence of the equity market is evidenced by the impressive 12.58% gain of the FTSE Bursa Malaysia KLCI (FBM KLCI), marking the best annual performance for the benchmark index since 2010. Notably, for the first time in May, the market capitalisation of Malaysian stocks surged past the RM2 trillion mark, signaling a resounding recovery.
Key factors fueling this rally include strong corporate earnings, increased foreign investment inflows, and optimistic projections regarding Malaysia’s economic trajectory, particularly highlighted by better-than-expected trade data. The upward momentum in the equity market has been primarily driven by major contributors like YTL Power International Bhd, Tenaga Nasional Bhd, and CIMB Group Holdings Bhd. The benchmark index has also started trading at a higher valuation multiple, with a forward price-to-earnings ratio of 15.7 times, exceeding its three-year average of 14.3 times as of December 30. Strengthening of the Ringgit
Moreover, the year has seen a significant appreciation of the Malaysian ringgit, which rose by as much as 11.4%, reaching an intra-year high of 4.124 against the US dollar in September. Although the currency has since pared gains, it remains up by 2.84% year-to-date, thanks in part to Bank Negara Malaysia’s recommendations urging local businesses to repatriate overseas investment income and convert export proceeds back into ringgit.
Despite a shaky start to 2024, marked by dramatic losses in shares linked to investor Datuk Dr Yu Kuan Chon, the market stabilized by February, paving the way for an impressive year in equities.
Controversies Surrounding Malaysian Airports Holdings Bhd Privatization
MAHB’s Privatisation Offer Sparks Protests
In a strategic move, Malaysia Airports Holdings Bhd (MAHB) received a controversial offer of RM11 per share in May from a consortium led by Khazanah Nasional Bhd and the Employees Provident Fund (EPF) to take the airport operator private. This offer follows a 35-year extension of MAHB’s concession, allowing it to manage 39 airports across Malaysia until 2069. The consortium, which includes Global Infrastructure Partners (GIP) and the Abu Dhabi Investment Authority (ADIA), plans to increase Khazanah’s stake in MAHB to 40% and EPF’s stake to 30%. However, the proposal has ignited public protests, particularly concerning GIP’s connections to BlackRock, which some critics allege have troubling ties. The Malaysian government has defended the proposal as a means to unlock MAHB’s potential.
In a notable turn of events, all five of MAHB’s independent directors released a statement opposing the offer, citing it as not reflective of the company’s full potential given its positive financial situation. This contrasts with the recommendation from independent adviser Hong Leong Investment Bank, which deemed the proposal reasonable, yet unfair based on MAHB’s estimated fair valuation.
Selection of U Mobile for 5G Deployment Raises Concerns
U Mobile Chosen to Lead Second 5G Network Deployment
In November, the Malaysian Communications and Multimedia Commission (MCMC) selected U Mobile Sdn Bhd to lead the deployment of the country’s second 5G network. This decision raised eyebrows, as U Mobile is significantly smaller than its competitors, prompting MCMC to clarify its choice, citing U Mobile’s established track record.
However, concerns linger regarding foreign influence in Malaysia’s telecommunications infrastructure due to Singapore’s state-backed Temasek being U Mobile’s largest shareholder. Following MCMC’s announcement, an impending reduction of Temasek’s stake to 20% was revealed through a sale to Mawar Setia, a company linked to prominent Malaysian figures.
Certain ambiguities remain regarding the actual stake Temasek holds, leading to speculations about potential breaches of Malaysia’s foreign shareholding cap for telecommunications companies. In response, Temasek maintained that its stake aligns with U Mobile’s compliance disclosures.
Sarawak’s Quest for Control Over Gas Resources
Push for Local Gas Aggregator Role
The year has seen Sarawak advocate for greater control over its significant gas resources, aiming for Petroleum Sarawak Bhd (Petros) to assume the role of aggregator for gas supply in the state, currently dominated by national oil company Petronas. With Sarawak hosting 60% of Malaysia’s gas reserves, the push for local aggregation aims to ensure more favorable pricing for residents and industry.
Debate surrounding this transition reflects broader concerns regarding the economic implications for Petronas, a key contributor to federal revenues. Petronas’s gas segment has been instrumental for its profitability, contributing 37% to its overall profits in 2023. The call for Petros to take over the gas aggregation role continues to stir discussions among state and federal leaders as they navigate potential impacts on the local oil and gas ecosystem.
Public Bank Acquires Teh Family’s Stake in LPI Capital
Public Bank Moves to Strengthen Holdings in Insurance Sector
In October, Public Bank Bhd made headlines with its announcement of acquiring a 44.15% stake in LPI Capital Bhd from the family of its late founder, Tan Sri Teh Hong Piow. This RM1.72 billion deal, priced at RM9.80 per share, marks Public Bank’s first noteworthy merger since its acquisition of Hock Hua Bank Bhd in 2021. As part of the deal, the Teh family plans to gradually reduce its stake in Public Bank from 23.41% to 10% over the next five years, adhering to regulations imposed by the Financial Services Act, which limits individual ownership in financial institutions. With the planned transition, the Teh family is set to remain a significant shareholder, while the EPF would maintain its position as the largest stakeholder in Public Bank.
Surge in Data Centre Investments Transforms Malaysia’s Landscape
Massive Investments Signal Data Centre Boom
Malaysia is increasingly becoming a focal point for data centre investments, attracting commitments exceeding RM75 billion (approximately US$16.9 billion) from global tech giants like Amazon Web Services, Microsoft, Google, and Oracle. This unprecedented influx of capital not only enhances Malaysia’s technology infrastructure but also stimulates local economic growth and job creation.
In summary, Malaysia is experiencing a multifaceted advancement in its economic landscape, from a resurgent equity market to significant developments in telecommunications and burgeoning investments in the tech sector. Each of these elements plays a crucial role in shaping Malaysia’s future as it navigates opportunities and challenges.
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