Malaysia should attract larger and more stable foreign portfolio inflows as passive investing overtakes active fund management globally, said CIMB Malaysia banker Chu Kok Wei.
Chu said the global shift towards passive investing presents an opportunity for Malaysia to increase its weighting in major benchmark indices and attract more stable capital flows.
The global shift towards passive investing is an area Malaysia must capitalize on to attract more stable capital flows.
Chu noted that Malaysia has a window to gain as some competing emerging markets have become less attractive due to tariffs and the Middle East conflict.
Earlier in the discussion, Chu said Malaysia’s financial markets have become increasingly driven by long-term investment flows rather than short-term speculative capital.
The financial flows today tend to be long term, index-driven, real money accounts, and a lot less of leverage short-term.
While government policies to strengthen Malaysia’s economic fundamentals would take time to bear fruit, improvements in the country’s representation in global benchmark indices could help draw portfolio inflows in the nearer term.
That’s where the government policies have to come in and implement and follow through, Chu added, noting that this process would take longer, around three, five, or seven years.
However, the financial flow will be a lot more near-term, he said, as Malaysia looks to attract more stable capital flows through retirement plan initiatives and other measures.
The plenary session, moderated by BNM assistant governor Mohamad Ali Iqbal Abdul Khalid, also focused on the current trend in the ringgit’s momentum and financial markets.
Other panellists included Employees Provident Fund chief investment officer Mohamad Hafiz Kassim and HSBC senior Asean economist and director Yun Liu.
They broadly agreed that the ringgit had been one of the best performing currencies in the Asean region, noting that it remained below 4.00 against the US dollar throughout May.
At market close on Tuesday, the ringgit was trading at 4.0890 against the greenback, having pared some gains due to geopolitical risks and economic uncertainties.
As Malaysia looks to increase its weighting in major benchmark indices, it may be able to draw on the experience of other countries that have successfully attracted passive investment flows.
In terms of the potential benefits of passive investing, Chu‘s comments suggest that Malaysia may be able to attract more stable capital flows, which could help to support the country’s economic growth, similar to the growth seen in Wall Street during times of economic stability.
