The Chinese stock market, which carried a mere 1% weightage during the AFC, now accounts for more than 32% of the MSCI Emerging Markets Index (as at end-January 2022) — a reflection of the country’s rapid economic growth as well as the increasing value (market capitalisation) of its listed companies. The combination of both factors led to the drop in Malaysia’s weightage in the MSCI EM Index from a peak of 20% in 1994 to a little over 1.3% by end-2021.
A couple of weeks back, we highlighted the fact that Bursa Malaysia had lost its lustre among portfolio funds. And, as a result, the local bourse has been a chronic underperformer since the heyday of the 1990s super bull cycle. Interest from foreign investors, in particular, has been lacklustre. According to statistics from Bursa, foreigners were net sellers on the local bourse in seven of the last 12 years — with net outflow totalling nearly RM36 billion over the period.
This can be attributed, in part, to Malaysia’s shrinking weightage in major benchmark indices, widely tracked by global fund managers. This negative impact is further compounded by the rapid rise in popularity of index-linked mutual funds and index ETFs (exchange-traded funds) over the last decade or so. As we wrote previously, Malaysian stocks corrected sharply from bubble valuations post-Asian financial crisis (AFC) while markets in Taiwan, South Korea, India and, especially, China gained prominence.
