Is Bursa Malaysia over-reliant on EPF and KWAP?
3 hours ago
Ashwin Chockalingam
Low free-float levels, restricted access, and lack of growth-oriented listings are driving foreign investors away from the Malaysian equities market.

Malaysia’s equities market has lagged many of its regional peers in recent years, and a significant part of the challenge appears structural rather than cyclical.

Foreign institutional investors, once a crucial source of liquidity, have been steadily retreating.

As of Sept 30, 2025, net portfolio equity outflows reached RM16.4 billion, nearly four times the full-year outflow in 2024 based on an RHB Research note in October 2025, reflecting a deepening lack of confidence among global funds.

This shift has driven foreign shareholding in Malaysian equities to just 19% of market capitalisation — an all time low, as per a CIMB Research report.

As foreign participation shrinks, the responsibility of supporting market liquidity has fallen increasingly on large domestic institutional investors, particularly the Employees Provident Fund (EPF) and Kumpulan Wang Persaraan (KWAP).

Institutional investors already hold dominant positions across many Malaysian public companies, leading to reduced free float and a narrower pool of tradable shares.

The consequence is a market whose movements can be disproportionately shaped by the rebalancing actions and asset-allocation priorities of a small number of large funds.

While institutional stability may help prevent steep market corrections, it also results in muted price discovery and limited upside, particularly when these institutions are cautious or not actively accumulating equities.

Analysts from Maybank Investment Bank and CGS International have long highlighted how EPF’s periodic selling or rebalancing activity often coincides with broad market softness, underscoring its influence.

When foreign investors exit and domestic institutions hesitate at the same time, trading volumes can rapidly stagnate, leaving the market without a strong alternative source of demand to sustain valuations.

This structural imbalance raises an important question: can Malaysia continue to rely so heavily on its retirement and pension funds to keep the market functioning?

EPF and KWAP undoubtedly play valuable economic roles, but an equity market driven primarily by government-linked institutions risks becoming less attractive to both global and domestic investors who expect vibrancy, diversity, liquidity, and competitive pricing.

As the pool of active investors narrows, companies also lose the benefits of broader shareholder engagement, including market-driven governance and long-term capital seeking growth rather than only stability.

Research from the World Bank and the Organisation for Economic Cooperation and Development (OECD) on emerging-market liquidity repeatedly emphasises that markets dominated by state-linked funds tend to exhibit lower turnover and weaker price discovery.

For Bursa Malaysia to regain momentum, investor participation must deepen and diversify.

Improvements in free-float levels, better market accessibility, and more growth-oriented listings could draw renewed interest from both foreign funds and Malaysian retail investors.

Without these changes, the market will remain heavily dependent on a few large hands — and its long-term performance will continue to hinge on whether EPF and KWAP are willing and able to keep buying.