Bursa Malaysia Quality 50 Index posts stronger returns in early market test

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Bursa Malaysia Quality 50 performance

Highlights

Bursa Malaysia Quality 50 Index (BMQ) gained 9.4% in the first nine months of this year, outperforming the FBM KLCI, which fell 1.7%.
BMQ’s annualised volatility of 10.3% and return-to-risk ratio of 0.9 point to strong performance without higher risk than other indices.
BMQ constituents have a market capitalisation of RM208.6 billion (10% of Bursa Malaysia), an average daily trading value of RM297.6 million and a trading velocity of 43%.

This article was translated from the original. Read the original version by our correspondent here.

Early performance and quality-screening characteristics

The Edge Malaysia reported that the Bursa Malaysia Quality 50 Index, or BMQ, was designed to identify companies with stronger financial characteristics using three key measures: return on equity, the debt-to-equity ratio, and earnings quality, based on operating cash flow relative to profit after tax and minority interests.

In the first nine months of the year, BMQ gained 9.4%, compared with a 1.7% decline in the FBM KLCI, a 4.6% gain in the FBM Mid 70 Index and a 1.1% increase in the FBM Small Cap Index. The period served as an early test of the index’s approach as markets faced geopolitical developments in West Asia, energy price volatility, shifting monetary policy expectations and risk-off sentiment.

Shared data showed that the higher returns did not come with substantially greater risk. BMQ’s annualised volatility was 10.3%, the same as the FBM70 and only slightly above the FBM KLCI’s 10.0% and the FBMSCAP’s 9.9%. Meanwhile, BMQ’s return-to-risk ratio of 0.9 was the highest among the four indices.

BMQ also showed a closer correlation with the FBM70 and FBMSCAP, at 0.6 and 0.5 respectively, compared with just 0.04 with the FBM KLCI. However, the constituents’ fundamentals suggest that the index is more than just a proxy for exposure to mid- and small-cap companies. BMQ constituents had an average ROE of 17.4%, higher than the FBMSCAP’s 13.2% and the FBM70’s 7.6%, while their average total debt-to-equity ratio was just 15.8%, well below the FBM70’s 72.9% and the FBMSCAP’s 57.5%.

Investment scale and implications for the Malaysian market

Beyond performance comparisons, BMQ also illustrates how a quality-based investment strategy can be implemented systematically through a rules-based index framework. This approach allows investors to gain exposure to companies with stronger earnings, healthier balance sheets and better earnings quality without having to assess each company individually.

As of 30 Sept 2026, BMQ constituents had a combined market capitalisation of RM208.6 billion, or about 10% of Bursa Malaysia’s RM2.1 trillion market capitalisation. They also recorded an average daily trading value of RM297.6 million, equivalent to around 9% of the market’s total average daily trading value of RM3.2 billion.

Liquidity is also built into the index methodology, with BMQ constituents required to have a minimum 12-month trading velocity of 10%. In practice, the index recorded a velocity of 43%, above the FBM KLCI’s 29% and close to the FBM70’s 46%, although still below the FBMSCAP’s 60%.

For institutional investors and exchange-traded fund managers, these figures show that BMQ is not a narrow basket that is difficult to access. While nine months is not long enough to prove that the quality factor consistently outperforms the market over a full cycle, these early results suggest that the index is capturing the characteristics it is designed to target and offering an additional perspective on the Malaysian equity market compared with traditional market-capitalisation-weighted benchmarks.

In our earlier coverage of the appeal of Malaysia’s equity market, we highlighted how local stocks remained relatively resilient amid global uncertainty and continued to attract foreign investors’ attention. We also explained that the technology and financial sectors were seen as key drivers of interest and potential capital inflows, although market sentiment remained influenced by macro risks such as U.S. interest rates and inflationary pressures.

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