Is the FBM KLCI running ahead of the rest of Bursa Malaysia?

By Datuk Hong Chew Eu


WHEN COVID-19 first hit Malaysia in early March 2020, the country went into a nationwide lockdown with the movement control order (MCO). The Malaysian stock market reacted like all the other stock markets around the world – there was a sharp decline in the FTSE Bursa Malaysia Kuala Lumpur Composite Index (KLCI) of about 20%.

The stock market then began to recover when the MCO brought the spread of COVID-19 under control.

When the next virus wave hit the country in Oct/Nov of 2020, the KLCI had already surpassed the Jan 2020 level. While there was some decline in the KLCI as the number of daily cases of COVID-19 began to rise, it was not as large as that in March 2020.

The chart below illustrates this.

You will notice two things with the latest stock market situation:

  • While the KLCI did decline, it was not as severe as the decline in March 2020. The KLCI declined is about a 7% this time.
  • Furthermore, the decline this time took a longer period compared to the Mac 2020 decline.

Today the KLCI is hovering around the 1,600 level. This is around the 2016 level.

Is the market suggesting that the worst economic impact is behind us and that we can expect an economic performance equal to that of 2016?

KLCI comparative performance

One way to answer the question is to look at the actual performance of the companies making up the KLCI

I considered two perspectives – company financial performance and the stock price performance.

  • For the company financial performance, I looked at two metrics – earnings per share (EPS) and return on equity (ROE)
  • For the market price performance, I looked at three metrics – price to earnings (PE), price to book value (PBV) and dividend yield (DY).

For comparison, I chose the Dec 2016 stock market performance as representative of 2016 and the mid Apr 2021 for the current performance. 

Based on the median values, I found that the current financial performance is lower than that of 2016.

  • The current EPS is 35% lower than that in 2016.
  • The current ROE is 13% lower than that in 2016.

When the stock price is taken into account, the current valuations are higher than those in 2016.

  • The PE and PBV currently are higher than those in 2016 by 9% and 38 % respectively. 
  • The current DY is 7% lower than that in 2016.

What does the difference in performances mean? I interpret them as the current market price running ahead of the earnings.

Bursa main board comparative performance

Of course, the KLCI only represent the performance of the top 30 companies. Would the results be the same if you look at Bursa as a whole?

A comparison of the performance of the Bursa Malaysia Main Board companies in 2021 with those in 2016 showed the following:

  • The current EPS and ROE is 69% and 61% lower respectively than those in 2016.
  • The PE is currently are higher than those in 2016 by 5%. Reading this together with the lower financial performance suggests that the market did not price the companies lower despite the lower earnings.
  • The PBV for both periods is the same.
  • The current DY is 69% lower than that in 2016.

You can deduce that there are differences between the KLCI component companies and those in the Main Board.

Is the movement broad based?

We know that the KLCI is made up of the top 30 companies in Bursa Malaysia. As such we would expect that the performance of the KLCI component companies to be better than those of Bursa Malaysia Main Board companies.

In other words, expect a gap when comparing these two groups. Are the gaps in 2021 the same as those in 2016? No, it is actually wider.

The chart below shows the gaps between 2021 and 2016.

  • In terms of EPS, the current gap is 30% smaller than that in 2016.  Note that the % is based on the 2016 values
  • However, in terms of ROE, the current gap is actually 34% larger than that in 2016. The contradictory result with the EPS is because the current book values are different than those in 2016. I would focus on ROE rather than EPS.
  • When it comes to the valuation multiples, the current gaps for the PE, PBV and DY are larger than those in 2016.


The KLCI as of April 2021 seemed to have recovered to the 2016 levels. However, this does not reflect the financial performance of the companies making up the KLCI.

From a financial performance perspective:

  • The KLCI constituent companies in 2021 did worse than those in 2016.
  • The KLCI component companies in 2021 did much better than all the companies on Bursa Malaysia’s main board.

From a relative valuation angle, the prices of the KLCI constituent companies have run ahead of their financial performance. In layman terms, it is probably overvalued relative to the fundamentals.

At the same time, the PE and PBV multiples of the KLCI component companies in 2021 have increased more than those for the Bursa main board companies. Relative to 2016, I would conclude that the KLCI component companies has run further ahead of the rest of the Bursa companies. – April 28, 2021



Datuk Eu Hong Chew was on the board of I-Bhd from 1999 till 2020. As Group CEO, he led its transformation from a digital appliance manufacturer into the developer of i-City, the Selangor Golden Triangle.

This article was re-purposed from “Is the KLCI running ahead of the rest of Bursa Malaysia?” that was first published on  Refer to the article for more details of the analysis. 

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.

Subscribe and get top news delivered to your Inbox everyday for FREE