This article seeks to unpack the CMP4 objectively, the issues it addresses and what it does not. And whether the measures as outlined can really fix what has ailed Bursa for more than a decade.
The major thrusts in CMP4 (and MY Value Up programme) for the equity market include proposals to:
(i) strengthen board oversight, accountability and focus on long-term value creation and capital efficiency, possibly linked to tangible performance metrics;
(ii) improve disclosure, research coverage as well as investor engagement on company strategies and performance targets to raise visibility, liquidity and valuations;
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(iii) have more proactive data-driven analytics to identify companies with signs of financial distress, early intervention and structured recovery pathways for weaker, non-compliant or dormant companies to restore investor confidence; and
(iv) broaden investment products and market depth, including a more streamlined IPO process and foreign company listings, to position Malaysia as a regional capital market hub.
The master plan also aims to increase retail participation by improving financial literacy and accessibility riding on artificial intelligence (AI) tools and digital platforms.
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Corporate governance and disclosures without credible enforcement is pointless
Many of the largest companies already have good investor relations programmes but a mandatory requirement for some level of engagement commitment from smaller-cap companies would be helpful. After all, these companies are taking money from the public.
On the other hand, the proposals for company board of directors to improve on corporate governance, long-term value creation and capital discipline, as well as more disclosures of strategies and financial metric targets are, we think, unlikely to drive meaningful behavioural changes.
For starters, most company annual reports, including the chairman’s statement, already provide some forward-looking guidance on outlook and plans. The macro and business environment is fluid. How would the Securities Commission Malaysia or Bursa hold boards to account for any deviations and/or failure to achieve their KPIs? Change in strategies should and must be the prerogative of the company. Sanctions or public reprimands for non-compliance are unrealistic.
In any case, insufficient disclosure is not the issue for most investors. The quarterly earnings reports do a fairly good job of telegraphing performance. The primary issue is distrust in corporate governance — that boards and management will always maximise value for, and act in the interests of, all shareholders rather than just the controlling shareholders — and critically, lack of credible enforcement.
Malaysia has a checkered history of scandals, ethical breaches, abuse of power, lack of transparency and accountability, not to mention poor oversight and weak enforcement as proof. In fairness, much has improved since the 1990s. But investors have options, and therefore, it’s always relative to other bourses. Take, for example, the stark disparity in the severity of repercussions for Malaysian businessman John Soh Chee Wen for similar market manipulation offences committed in Singapore and Malaysia (see the accompanying sidebar for more on this).
In a more recent corporate governance scandal, Serba Dinamik Holdings Bhd had a market cap of RM7.2 billion at its peak, before its auditor raised a red flag in 2021. The stock price collapsed, resulting in a near-total wipeout for all shareholders, individual investors as well as local funds including the Employees Provident Fund (KWSP) and Retirement Fund, Inc (KWAP). Its director and officers were initially charged for submitting false statements to Bursa Malaysia Securities. If convicted, they would have faced an imprisonment term not exceeding 10 years and a fine of not more than RM3 million, or both. But ultimately, each settled with a fine of RM3 million and the charges were dropped.
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Or take the instance where the legally appointed directors of the SRC International and now-defunct 1Malaysia Development Bhd (1MDB) boards were found to be not liable in criminal trials, because they were deemed to be subordinate to and took directions from then-prime minister Datuk Seri Najib Razak, who was the “shadow director” with ultimate authority.
Surely, no one will allow themselves to be used unless they receive some benefit in return. And if so, then that must mean complicity.
In Singapore, all directors are required to confirm that nothing has come to the board’s attention rendering interim financial statements false or misleading in any material aspect. The Monetary Authority of Singapore’s (MAS) enforcement records show civil penalties and prohibition orders against individuals for false trading and other dishonest conduct.
The point is, we can have all the guidelines, laws and regulations in place but lax enforcement erodes investor confidence, causing long-term reputational damage to Bursa. Market manipulation remains a recurrent theme on the bourse today, reinforcing the perception of a speculative and syndicate-driven stock exchange (or the recent “mafia-like” power play, using enforcement agencies, to force change in control of listed companies), particularly when it comes to smaller-cap stocks.
Therefore, shoring up oversight and enforcement is an area in which SC is likely able to create the most impact in strengthening minority investor protection, restoring confidence and attracting new participants to the local bourse. And in closing the valuation gap.
Six out of 10 stocks listed on Bursa currently trade below their book value. And at last count, there are 60 stocks that are trading at negative enterprise values; that is, their net cash exceeds total market cap. As we have said before, many stocks that appear “cheap” are value traps. Most are content to sit on low-performing, non-core assets (such as properties) and hoarding excess cash that is generating marginal returns — with no intention of raising dividends or unlocking value for shareholders.
Realistically, there is little SC and Bursa can do to compel boards and management to monetise and recycle assets to unlock value, raise capital efficiency and returns for shareholders. Forcing companies to comply or face delisting will only hurt minority shareholders and may even play into the hands of the controlling shareholders — by effectively enabling them to privatise the company on the cheap.
Yes, similar value unlock initiative has worked very well in Japan. The Tokyo Stock Exchange successfully engineered a behavioural shift by publicly calling out companies trading below their book value to disclose plans on improving capital efficiency and valuations. But we think the success of this “name and shame” approach is uniquely Japanese, given that public embarrassment and peer pressure are powerful motivating factors in Japan’s corporate culture. The same strategy, we believe, is unlikely to work in Malaysia. In the past, this column has called out many companies to do the same, to little avail. Malaysian corporate figures are hard to shame, as evidenced through the many scandals in the past. Believing that moral suasion can change the behaviour of hundreds of company boards and management is simply wishful thinking.
The market, we think, would do a better job as the catalyst. Case in point: Sunway Bhd’s recent offer for IJM Corp Bhd shares have spurred the latter to commit to unlocking more value for its shareholders. The independent adviser IJM appointed for the takeover offer valued the company at about double Sunway’s offer price. IJM has since revealed plans to list some of its construction and toll road businesses as well as sell its India operations and redirect those proceeds into assets with stronger returns.
That being the case, SC and Bursa can do more to encourage and foster a shareholder activist ecosystem in the nation. Earlier in the year, we presented an opportunity for a large fund/activist investor to unlock the substantial value in Insas Bhd (“A ‘sure bet’ to make big money” [The Edge, Jan 12, 2026]). The stock is priced at a massive discount to its cash and asset value — indeed, trading at negative enterprise value of some RM450 million. Disappointingly, there was no taker. This situation would not have existed in developed markets.
Investor engagement and visibility vs expanding the universe of investable stocks
The CMP4 outlines a multi-pronged strategy of attracting new investors, particularly young Malaysians, and at the same time, raises the visibility of quality stocks including through better disclosures and investor engagement.
To this end, Bursa Malaysia recently introduced two new indices built on financial performance — the Bursa Malaysia Quality 50 Index (BMQ) and its shariah-compliant counterpart Bursa Malaysia Quality 50 Shariah Index (BMQ-S) — as an alternative to the benchmark FBM KLCI, which is composed of the 30 largest companies by market cap. The intent is to spotlight quality companies with superior profitability, healthy balance sheets and strong cash flows. This group of companies, according to Bursa, materially outperformed the FBM KLCI over the past decade, delivering a gain of 86.6% over 10 years versus a 0.7% decline in the benchmark index over the same period. We have no doubt that the market rewards merit. And being recognised as a high-scoring quality stock would encourage companies to improve governance and earnings quality. In this respect, the BMQ index is constructive. This appears to be an implicit acknowledgement that the current benchmark FBM KLCI may not be reflective of the market and is not well constructed.
The problem is that 21 of the 50 BMQ stocks (or about 42%) have market caps below RM1 billion (roughly US$250 million or $317 million), with the smallest of the companies having a market cap of only RM250 million or a little over US$60 million. The BMQ stocks in combination make up just about 8% of Bursa’s total market cap. Additionally, the median average daily trade value (ADTV) is only RM1.6 million or US$400,000. In other words, most of the constituents are probably too small and too illiquid for institutional funds, unit trusts and family offices to invest in. This also makes it extremely hard to create derivative products like exchange-trade funds, which invest in and track the BMQ.
What we are trying to say is that to attract more investors, especially funds, there needs to be a larger universe of investable quality stocks. We cannot just put the cart before the horse. Currently, liquidity is highly concentrated on the FBM KLCI 30 stocks, which have a median ADTV of roughly RM29 million (see Table 1). Turnover drops sharply for the 129 stocks with market caps above RM1 billion, with median ADTV of just RM2.6 million (equivalent to only US$660,000). And liquidity practically dries up for the 839 stocks below the RM1 billion market cap — which makes up 80% of total listed companies — with median ADTV shrinking to less than RM100,000 or barely US$25,000. Illiquidity carries a discount — as underscored by the lower valuations for this group of stocks. Investors need sufficient liquidity to build and exit positions without influencing the market price.
There are some who suggest that GLICs put more money into Bursa to deepen liquidity — similar to the MAS’ Equity Market Development Programme (EQDP). Again, cart and horse. Yes, pumping more money into the stock market will boost trading activity, for a while. But it cannot change the underlying fundamentals of the listed companies — or their investability. In any case, more money will likely go into the FBM KLCI stocks, which already have sufficient liquidity.
Not to mention the fact that GLICs already have a dominant presence in the market. Would it not be better for free float if they reduce instead of further raising their stakes in the listed companies? GLICs are the de facto market makers. While this provides resilience and stability, it also removes volatility that can be beneficial to trading activities. Volatility can be attractive to investors depending on their trading strategies, and having different types of investors is necessary for a vibrant market.
Form vs substance; policy tools vs structural reforms
Apart from small market caps and low liquidity, Bursa stocks have another investability problem: profitability and growth. About three of every 10 companies are loss-making in the last 12-month period (TTM), most notably among those with market caps below RM1 billion. One in 10 of the companies in this category has reported losses not only in the TTM but also in the preceding three financial years (see Table 2).
The average profit margin and return on equity (ROE) for Bursa stocks have fallen in the past 10 years, and this is evident almost across every sector (see chart on the next page). Turnover and especially earnings growth are lagging GDP growth. Bursa comprises mostly companies engaged in old businesses, matured and even past peak, faced with growing global competition. It reflects Malaysia’s underlying economy that has been slow to transform from a low-cost, low margin, low-value added model.
GLCs dominate Bursa — accounting for 52% of assets, 38% of revenue and 43% of total market cap of all listed companies — and we have previously shown that their average returns are lower than non-GLCs within the same sector. They are crowding out the private sector.
The average shareholder return of GLCs is 3.5% — a drag on Bursa’s overall returns and attractiveness of the local bourse to investors. The low returns are due, in part, to their conflicting mandates — commercial vs socioeconomic and national development priorities. Case in point: As we pointed out in our article last week, a recently implemented framework for disposals of properties valued above RM20 million by GLCs and GLICs — whereby the acquiring companies must have at least 50% bumiputera equity ownership, up from the previous 30% — will narrow the buyer pool and result in lower selling prices, cash flow and returns.
The small universe of investable stocks has resulted in premium valuations for the FBM KLCI stocks relative to their expected growth. To underscore this scarcity premium for perceived quality and growing companies, Sunway Healthcare Holdings (the largest and most anticipated IPO for the year) is now trading at 76 times forward earnings. That’s more than triple the forward price-earnings (PE) for the S&P 500 (20 times) and well above valuations for the high-growth “Magnificent Seven” tech stocks.
In short, most companies listed on Bursa are from old industries, with shrinking sales and profitability. Even newly listed ones see peak earnings on listing, which then subsequently fall. The exceptions draw such high valuations, exceeding the global bests including AI companies. Why would global funds invest in Bursa?
What the master plan missed: The people who price risk
Capital markets do not fail because of rules. They fail because of the people operating within them.
At the heart of any vibrant exchange is not just liquidity or regulation but the quality of its participants: analysts who can think beyond templates, investment bankers who understand business models and regulators who appreciate nuance rather than enforce blunt metrics.
Yet this central pillar is conspicuously absent in CMP4. There are prescriptions on structures, access, products and frameworks — but little on the depth, sophistication and judgement of the talent pool that ultimately determines how capital is priced.
And when valuation collapses into a single shorthand — the PE multiple (lingo for analysts) — as is mostly the case for IPOs by investment bankers, the market quietly loses its ability to price the future. Or, as observed by Abraham Maslow, “If the only tool you have is a hammer, everything looks like a nail.”
A PE of 9 and a PE of 29 — or even 229 — tells you almost nothing on its own (scan the QR for a more detailed explanation on why this is so). Without context — growth, reinvestment rates, return on capital, durability of earnings — they are numbers masquerading as insight. Yet when this becomes the dominant language of the market, something more insidious happens.
Growth companies leave. This is why Malaysia is losing its best companies. They go where capital understands optionality, where losses today are seen as investments, where valuation frameworks stretch to capture what does not yet exist. Valuation was, is and will always be about discounting the stream of future cash flows — where sophisticated minds are applied to evaluate the probabilities of different possible outcomes. Not some dumb application of a single PE number to an accounting concept, earnings.
In place of these growth companies, what remains are businesses whose earnings have already peaked — companies that look “cheap” only because their future is behind them. This is why many of the recently listed companies on Bursa saw their profits decline after their IPO.
This is not a failure of regulation in the conventional sense. It is a failure of intellectual infrastructure — a market that has not invested enough in developing the people who interpret, challenge and price risk.
And then comes the second-order effect.
If markets reward low PE optics rather than real economic value, the incentives shift. Instead of building better businesses, companies are tempted to manufacture earnings — to smoothen, accelerate or even fabricate profits to fit the metric. The result is not just mispricing, but misrepresentation.
In such an environment, manipulation is not an anomaly. It is a rational response to a flawed system. And genuine investors ought to stay away. Because when the only tool you have is a PE ratio, every company is forced to look like it has earnings — whether real or not.
Malaysia has been through this scenario many times before. One of the most famous cases was Aokam Perdana Bhd in the 1990s. While markets cheered the exhilarating rise in its stock price, justified by the astronomical explosion in earnings, we at Phileo Securities called them out. With a timber concession that was almost bare of trees and finger joint woodworking manufacturing, it was reporting profit margins in excess of 50%. Clearly, it was putting in its own cash as profits. And since the market was willing to pay a multiple of the cash they put into the company, it was worthwhile for as long as they could sell their shares, recouping the cash they put into the company as fake earnings — and more.
Portfolio commentary
The Malaysian Portfolio gained 0.2% for the week ended April 8. Kim Loong Resources (+2%), Hong Leong Industries (+1.9%) and United Plantations (+1.1%) were the gaining stocks, while Maybank (-2.3%) and LPI Capital (-0.6%) ended in negative territory. Total portfolio returns now stand at 214.5% since inception. This portfolio is outperforming the benchmark FBM KLCI, which is down 8% over the same period, by a long, long way.
The Absolute Returns Portfolio also gained 0.2% last week, lifting total portfolio returns to 37% since inception. The top gainers were ChinaAMC Hang Seng Biotech ETF (+2.9%), Alibaba (+1.6%) and SPDR Gold MiniShares Trust (+1.4%), while the top losers were Kazhun
(-4.1%), Berkshire Hathaway (-1.2%) and Ping An Insurance – A (-1.1%).
Meanwhile, the AI Portfolio rebounded strongly, rising 6.5% for the week and turning positive with a +1.3% return since inception. Gains were broad-based, led by Unusual Machies (+20%), Marvell Technology (+17.6%) and Amazon (+12.3%). Minth (-2.4%) was the only loser for the week.
Institutional strength is enforcement, not legislation
Apart from Uniphoenix Corp Bhd and Omega Securities Sdn Bhd, John Soh Chee Wen was involved in several other companies during the 1990s, including Promet Bhd, Kelanamas Industries Bhd, Autoways Holdings Bhd and Kuantan Flour Mills Bhd. But there was no other investigation by the Securities Commission Malaysia. The above episode itself resulted in losses of RM425 million for Omega Securities.
Clearly, the penalty of just a fine (RM6 million for Soh and RM3 million for Tiah) was an affront to justice. Despite the time passed, and especially in the light of the case in Singapore and how the laws were enforced, those who made the decision to let Soh off lightly must be held to account. Who were they and what were their reasons? Why is it that Singapore can carefully lay out their cases meticulously and convict him while Malaysia cannot?
Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
