The cost of deepening Malaysia’s capital market

Malaysia’s capital market is growing and is seeking to attract even more foreign investments, but how deep can it go?

In March 2025, the Securities Commission Malaysia proposed the Capital Market Masterplan 2026-2030 with the vision to reach MYR 6.3 trillion (USD 1.56 trillion) in capital fundraising activities by 2030 and develop the country into an investment hub for foreign investors.

Achieving this goal, however, raises a more complex question as capital flows into emerging markets like Malaysia have been inconsistent. As such, Malaysia’s foreign portfolio position reversed from a net inflow of MYR 2.5 billion (USD 620 million) in June to a net outflow of MYR 5.4 billion (USD 1.34 billion) in July.

More than the size of the capital market, its depth and value are also factors that foreign investors consider.\

Bigger, deeper market

The rise in Bursa Malaysia’s main market capitalisation indicates that higher valuations among a limited number of large firms can lift the overall stock market. In August 2026, total market capitalization reached a one-year high of MYR 2.213 trillion (USD 550 billion), capturing rising valuations and improved investor confidence in Malaysia.

Graph 1 shows that Malaysia’s total market capitalisation increased by about 54 per cent in the past decade, from MYR 2.8 trillion (USD 700 billion) in 2016 to MYR 4.31 trillion (USD 1.07 trillion) in 2025. This has brought the capital market to a level that is structurally important for the economy, reaching 2.1 times Malaysia’s overall GDP of MYR 2.03 trillion (USD 498 billion) in 2025. Further, the ratio of Malaysia’s capital market and nominal GDP has diminished, from 224 per cent in 2015 to 212.3 per cent in 2025. However, this is not bad news: the decline is not due to a contraction in Malaysia’s capital market; rather, the economy has outpaced expectations in the past few years.

Based on data from the Malaysia Capital Market Stability 2025 report, foreign holdings in equities slid from the previous year’s 19.69 per cent to 19.02 per cent while the value of bonds held rose from 13.16 per cent to 13.37 per cent. By end-2025, total foreign net outflow of equities amounted to MYR 22.32 billion (USD 5.54 billion) as foreign investors relocated money in the face of uncertainty over US trade policy. Meanwhile, foreign bond trading reached MYR 34.54 billion (USD 8.58 billion) in 2025 due to the Malaysian ringgit holding firm and inflation remaining manageable. The pricing of Malaysia’s USD 1.5-billion global sukuk offer also demonstrates foreign investors’ confidence in the country’s economic outlook despite challenging global issues.

In addition, Deloitte reported that Malaysia maintained its status as the leading country in Southeast Asia in IPO market capitalisation for the first half of 2026, with USD 6.51 billion in aggregate fundraising. Investor trust has continued to favour Malaysia.

MSCI’s influence

In May, the MSCI Malaysia Index dropped four stocks from its basket: Axiata Group, YTL Corp, Petronas Dagangan, and Nestle (Malaysia). Meanwhile, the two stocks QL Resources and MR.DIY were relegated to the MSCI Malaysia Small Cap Index. The result wiped out of more than MYR 2 billion (USD 500 million) in market capitalisation, prompting a sell-off for these shares.

Graph 2 lists the 10 biggest firms by capitalisation under the MSCI Malaysia Index, which is dominated by banks. Together, they amounted to USD 87.3 billion as of August 2026, equivalent to three-fourths of total index value. According to Bursa Malaysia, total market capitalisation of financial services firms amounted to MYR 499.8 billion (USD 122.5 billion) as of end-August. Though Malaysia’s financial sector seems to dominate the capital market, we expect other sectors to catch up soon and attract additional investments.

One such sector is semiconductors, wherein the country ranks sixth globally in terms of export value. In August, the total market capitalisation of technology firms stood at MYR 102.7 billion (USD 25.2 billion) from 53 companies. As Malaysia moves up the global semiconductor value chain, it is also becoming increasingly urgent to deepen the country’s capital market in order to support the growth of domestic technology firms. Further, this illustrates that while the MSCI may be concentrated in mature sectors like banking, Malaysia’s tech manufacturers can offer new opportunities for value creation and growth.

Capital market reform

In line with the Capital Market Masterplan 2026-2030, market regulators introduced the MY Value Up Programme to push listed companies to improve corporate governance protocols. The hope is to attract more investors with the disclosure of mid- to long-term business strategies particularly for firms with at least MYR 4 billion (USD 1 billion) in market capitalisation.

South Korea has employed a similar approach which has increased assets under management, doubling since the launch of its stewardship programme in 2016 as of March 2026. These strategies allow investors to examine measures such as return on equity and invested capital. With Malaysia’s programme underway, there would be greater transparency on whether a company is generating profit for the investors and if the deployment of capital is efficient.

If the implementation is done right and without external disruptions, Malaysia might reach its capitalisation targets by 2030 and deepen its market further, aiding domestic firms and attracting even more global investors. These market-friendly reforms are what we like to see over direct state interventions, and we think this will be warmly received by market players.