The Negative 10-Year Return of the KLCI

Source: Yahoo Finance

The goal of investing is to generate long term returns that beats your personal inflation rate and achieve your financial goals in life.

If you’ve put all your investments in the Malaysian stock market for the past 10 years, you would have soundly failed your goal. As of today November 26th 2022, the KLCI, excluding dividends, is now lower than what it was 10 years ago (1,486 vs 1,610).

Property price in general, is slightly better, but is highly dependent on the location and type of property. Selling prices for some places in Kuala Lumpur is still below their peak in 2015-2016.

Factor in the inflation rate and the weakened ringgit and the reality is worse.

Putting things in perspective, this is the first time since 2007 that the 10-year compounded annual growth rate (CAGR) of the KLCI has turned negative. The last time this happened was from 1998 to 2006 when it was triggered by the Asian Financial Crisis. The big difference is that, rather than a quick and sharp decline then, this has been a long multi-year slow decline that started in early 2014. (Is it a coincidence that the 1MDB grand corruption was exposed also in early 2014?)

Source: KLCI data from Yahoo Finance.

Is Malaysia poised for a recovery in 2023? With the developed economies already in or heading into recession, it appears unlikely. The earnings of Malaysian companies will continue to be under pressure as they are not insulated from the global economy.

It may be possible that Malaysia would fare relatively better than the others if the country redeems itself in the eyes of the international investors. Malaysia needs to increase its trade with the rest of the world, improve its mastery of the English language and embrace a high productive work force that is unafraid of competition.

For the average investor, it would be wise to stay geographically diversified. Do not put all your eggs in one country. Thankfully these days, it is not difficult to have your money work harder for you in international markets. There are low cost ETFs listed on the KLSE that tracks companies listed in foreign countries and also good internationally exposed unit trusts.