Malaysia's capital market overcomes global economic hurdles in 2024 to cross RM4 trillion mark

KUALA LUMPUR - Malaysia's capital market reached a significant milestone in 2024, surpassing the RM4 trillion threshold, driven by strong domestic fundamentals that helped overcome complex and multifaceted global economic challenges.

As of October 2024, the outstanding amount of the Malaysian bond and sukuk market stood at RM2.09 trillion, while the total market capitalisation of securities listed on Bursa Malaysia amounted to RM2.00 trillion, which surpassed the RM2 trillion mark for the first time in May.

The total equity market capitalisation and bonds/sukuk outstanding continued to grow, fuelled by domestic reforms and economic growth forecasts of between 4.8 per cent and 5.3 per cent this year.

However, export-driven sectors remain vulnerable to external shocks such as subdued global trade recovery, geopolitical tensions, and structural realignments in global supply chains, said UOB Kay Hian Wealth Advisors' head of investment research Mohd Sedek Jantan.

He said these factors underscore the capital market’s sensitivity to external demand volatility, particularly as global trade reconfigures in response to nearshoring trends.

Moreover, global market volatility escalates as more central banks recalibrate monetary policies.

“While advanced economies are nearing the end of their tightening cycles, policy divergences in emerging markets to stabilise currencies or counter inflation contribute to heightened uncertainty in global financial markets.

“Adding to this complexity is the number of elections in key economies, such as the United States (US), India, and several European Union nations, which significantly shift foreign policies and trade alliances,” he said.

In 2023, the Malaysian capital market recorded a growth of 5.6 per cent to RM3.8 trillion from 2022’s RM3.6 trillion, driven by the increase in total equity market capitalisation and bonds/sukuk outstanding.

IPOs Soar In 2024

Bursa Malaysia has surpassed its 42 initial public offerings (IPOs) target for 2024, having seen 52 companies listed as of December 16.

About 11 listings were on the Main Market, near a 10-year record, while 37 IPOs joined the ACE Market, marking the highest number since 2005. The remaining four IPOs were listed on the LEAP Market.

Bursa Malaysia Bhd chairman Tan Sri Abdul Wahid Omar reportedly said 40 listings were last achieved in 2006.

Malaysia also has a few more in the pipeline to achieve a total of 55 IPOs by year-end, continuing to outperform its Southeast Asian peers so far this year in terms of count.

Meanwhile, about RM5.33 billion was raised via the secondary fundraising market.

Abdul Wahid is also optimistic about the outlook for 2025, citing a robust pipeline of IPOs and an active capital market.

He said a directive from Prime Minister Datuk Seri Anwar Ibrahim for the exchange to enhance efficiency by reducing processing times to within three months has sparked increased interest in market participation.

FBM KLCI Fares Better Than 2023

The FTSE Bursa Malaysia KLCI (FBM KLCI) climbed 10.6 per cent year-to-date (YTD) to 1,608.75 as of Dec 13 compared to 1,453.10 recorded on the first trading day of 2024.

In August, the benchmark index reached its highest level of the year at 1,678.80 points, a level last seen since December 2020.

Its overall performance is much stronger than in 2023, reflecting a positive trend in the stock market, despite the index's underperformance relative to targets of 1,700 to 1,780 levels.

Mounting global trade uncertainties after Donald Trump won the US Election have led analysts to revise their projections downward toward year-end, with UOB Kay Hian Wealth Advisors lowering its target to 1,650.

Mohd Sedek said for the remainder of 2024, the equities market should remain a core focus, particularly in high-growth sectors such as technology, healthcare, and consumer discretionary.

These sectors are well-positioned to benefit from robust domestic demand and supportive government initiatives, including measures under Budget 2024, the continued focus in Budget 2025 and the government strategic plan.

“For those seeking stability amid market volatility, defensive sectors like utilities and dividend-paying stocks in the banking sector provide attractive options with stable yields,” he noted.

He said the equity market may receive a seasonal boost from year-end window dressing, wherein fund managers typically rebalance their portfolios to highlight top-performing stocks.

Although this effect is usually short-term, it could help push the FBM KLCI higher, provided that the broader economic conditions remain supportive.

Bond and Sukuk Stabilising in Anticipation of US Rate Cut

While the Malaysian government bonds are stabilising, both domestic corporate bonds and sukuk have become more attractive compared to US bonds following the Federal Reserve's (Fed) first rate cut in four years in September.

“The market became even more attractive after the third Fed rate cut,” Mohd Sedek noted.

The Fed initiated its rate-easing cycle with a total of 50 basis points (bps) in September and slashed another 25-bps cut to a range between 4.5 per cent and 4.75 per cent in November 2024.

Aligned with market expectations, Bank Negara Malaysia held its overnight policy rate steady at 3.0 per cent for the ninth consecutive meeting in October 2024.

Mohd Sedek said the yield on Malaysian government bonds stayed stable at about 3.5 per cent, as expectations for a 0.25 per cent interest rate cut by the Fed in December have remained unchanged since Trump won the presidency.

“Malaysia’s leadership in the global Islamic finance sector reinforces the appeal of sukuk, making it a reliable choice. With stabilising interest rates creating favourable conditions for fixed-income instruments, shorter-term maturities are preferred to mitigate interest rate risks,” he noted.

Furthermore, he said that Malaysian bonds are likely to experience less volatility than those of other countries in the region, driven by consistent demand from local investors,” he said.

Investments by pension funds are also expected to enhance market stability by helping to maintain long-term yields at steady levels.

Trump's Policies and Potential for Malaysia in 2025

Mohd Sedek said while government initiatives and strong economic fundamentals provide a solid foundation, external uncertainties, from Trump’s policies to regional geopolitical tensions, necessitate a proactive and adaptive strategy.

Therefore, he said the dynamics of global geopolitics, US trade policies under Trump 2.0, and regional economic shifts warrant a closer examination of the risks and opportunities.

Historically, Trump has prioritised foreign policy over trade policy, aiming to bolster US strategic interests. “While this could create friction with multilateral partners such as the European Union, countries in Asia, including Malaysia, may find themselves in a relatively advantageous position,” he noted.

Malaysia has been one of the main beneficiaries of the US-China trade war as the country has seen significant investments from both nations as production chains are closely linked.

Domestically, he said, there are positive developments on the horizon. In January 2024, the Prime Minister emphasised the importance of government-linked investment companies focusing their investments within Malaysia to support domestic economic growth.

This strategic move aims to bolster the local market by ensuring that significant investment funds remain within the country.

Additionally, Budget 2025 includes provisions to increase the Employees Provident Fund (EPF) base by allowing foreign worker contributions.

“This initiative is expected to organically grow the liquidity in the market, providing a more stable and substantial pool of funds for investment. By broadening the EPF base, the government aims to enhance the capital market's resilience and attract more investors,” he said.

Malaysia has also continued to advance its regulatory framework to improve market efficiency and transparency. Efforts by the Securities Commission Malaysia (SC) and Bursa Malaysia have focused on digitalisation, enhanced disclosure standards, and incentives to increase retail participation.

“Malaysia’s capital market lags behind regional peers such as Singapore and Indonesia in terms of investor base expansion. Low retail participation remains a critical challenge, and addressing it requires a multi-pronged approach.

“Broadening access to capital market products through low-cost digital platforms, expanding targeted financial literacy programmes, and introducing tax-advantaged investment vehicles are necessary steps to encourage household participation."

Mohd Sedek highlighted that Malaysia needs deeper structural changes to improve market depth, liquidity, and resilience.

As of 2022, the country had approximately 2.5 million retail investors, and this smaller investor base limits the market's depth and breadth, leading to several challenges.

In contrast, Singapore and Thailand boasted around 3.5 million and 4.0 million retail investors, respectively. - BERNAMA