(Aug 29): The rally in Malaysian equities is poised to extend as the Southeast Asian country’s political stability and wooing of artificial intelligence investments begin to pay off.

With global interest rekindled, the benchmark KLCI index Thursday traded near its highest since December 2020. Local shares saw the highest net buying by foreign investors in more than seven years on Wednesday, according to data compiled by Bloomberg.

The milestones, also similarly emerging in other Malaysian asset classes, reflect investors’ growing conviction that the nation has turned a corner after years of being shunted aside due to economic malaise and political uncertainties.

Malaysia is benefitting from “better politics and AI boom,” said Nirgunan Tiruchelvam, an analyst at Aletheia Capital. Investors are also rotating to the country given “there are question marks about China’s recovery and India appears to be highly overvalued on certain metrics.”

Global funds have bought about US$536.5 million (RM2.3 billion) of local shares this year on a net basis, on pace to hit the highest annual inflow since 2022, the data show. That’s a sea change from withdrawals of about US$11.5 billion in the previous six years.

Meanwhile, an index of dollar-denominated Malaysia bonds has returned 9.2% this year, the best in emerging Asia, according to Bloomberg-compiled data. After lagging for much of the past year, the ringgit also has risen this week to the highest level since February 2023.

The currency is “strengthening alongside the positive equity market outlook,” said Tareck Horchani, head of prime brokerage dealing at Maybank Securities. “This is further supported by a broader dollar sell-off, anticipated due to projected rate cuts by the Federal Reserve.”

The surge of inflows into Malaysia looks similar to what’s happening in Indonesia amid a rotation from China and India and the Fed’s imminent easing cycle.

But unlike other Asian peers, Malaysia is witnessing political stability for the first time since 2018, as Prime Minister Anwar Ibrahim broadens parliamentary support, while driving the country to become a top regional bet on the AI boom.

The country was already well-established as a global chip testing hub, but Anwar has managed to woo tech giants, such as Microsoft Corp, Nvidia Corp and Alphabet Inc, into committing billions of dollars to the country’s AI infrastructure.

Bank stocks, usually seen as bets on the economic outlook, are also powering the market’s gain. Six of the top 10 monthly gainers on the gauge are lenders. CIMB Group Holdings Bhd’s shares have shot up nearly 40% this year, while Public Bank Bhd is up about 11%.

“The sector is showing robust signs of health, including encouraging results across the board,” Horchani said. “Additionally, there’s a renewed interest from foreign investors, as evidenced by the relatively low foreign shareholding in the sector up until now.”

https://www.theedgemarkets.com/node/724799