Small Stocks Crush Malaysia Benchmark, Unseen in Decades

Malaysia’s main equity index is languishing, but the nation’s small stocks are powering ahead as retail investors pile into a risky corner of the market.

The FTSE Bursa Malaysia Small Cap Index has jumped 34% from a November low and is trading at the highest level since 2000 relative to the FTSE Bursa Malaysia KLCI Index. The benchmark index is down 1.6% for the year.

Small Stocks Crush Malaysia Benchmark, Unseen in Decades

The outperformance has seen the small-cap index’s market value almost triple from a year earlier to a record 137 billion ringgit ($33 billion), underscoring the growing heft of amateur stock-pickers who drove up market volumes globally last year.

Annual volume for Malaysia’s small stock gauge hit a record 217 billion shares in 2020 amid bets the smaller companies may be more nimble than their bigger counterparts to adapt to the unprecedented changes induced by the pandemic.

“Small-cap party is getting a boost from the rising number of retail investors, who usually prefer such names,” said Danny Wong, chief executive officer of Areca Capital Sdn., which had about 1.73 billion ringgit in assets as of April last year. “Prices are no longer cheap. One should stay selective.”

The small-cap index retreated 1% on Thursday, the most since March 19, while the KLCI climbed 0.5%.

Political uncertainty has weighed on Malaysia’s main stock index along with the slide in the three of the biggest glove makers whose investment appeal has waned from global vaccine rollouts. Top Glove Corp., Supermax Corp. and Hartalega Holdings Bhd. are biggest decliners on the benchmark so far this year.

The divergence may persist as smaller firms provide investors an opportunity to bet on “undiscovered growth stocks that could yield higher earnings growth than the KLCI index,” Walter Aw, an analyst at CGS CIMB Research, wrote in a report.

CGS-CIMB’s small- and mid-cap corporate access day event held last week drew 145 clients from 65 institutions, he said.

©2021 Bloomberg L.P.

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