KUALA LUMPUR (Nov 7): Anticipated US Federal Reserve (Fed) rate cuts and steady economic growth are set to fuel foreign investor demand for Malaysia's sukuk and bond issuance next year, said MARC Ratings Bhd's chief economist.
Dr Ray Choy said the Fed is likely to deliver three rounds of rate cuts totalling 75 basis points in 2026, potentially in January, June and October.
Bank Negara Malaysia (BNM), meanwhile, is expected to implement one policy-rate cut of 25 basis points next year, in tandem with the global easing cycle, Choy said during the Malaysian Bond and Sukuk Conference 2025, held virtually on Friday.
On the domestic front, gross domestic product (GDP) growth is projected at around 4.3% in 2026, in line with the government’s forecast range of 4% to 4.5%, while inflation is likely to remain contained at 1.6%, as the impact of the government’s fuel-subsidy rationalisation is expected to be minimal for now, he said.
“We expect sukuk and bond issuance in Malaysia in 2026 to be more positive. This will be driven by easier global monetary-policy conditions, which will spill over to lower yields in the Malaysian bond market,” he said.
“Secondly, our house view is for a potential policy-rate cut of 25 basis points in 2026 in Malaysia.
“Thirdly, GDP growth will be driven by the investment upcycle, following above-average gross fixed-capital formation, foreign direct investment, rising tourism, and resilient private consumption. Infrastructure spending, such as on data centres and ongoing construction activity, will also support demand,” he added.
In the first nine months of 2025, Malaysia’s bond and sukuk market recorded RM2.24 trillion in outstanding issuances, according to BNM data.
The combined value of Malaysian Government Securities (MGS) and Government Investment Issues (GII) climbed 123%, from RM582.46 billion at end-2015, to RM1.30 trillion as at end-September 2025.
In addition, Malaysia’s equity market valuations are seen improving, supported by expectations that the interest-rate gap between the US and Malaysia will narrow in 2026 as the Fed cuts rates more aggressively, which is likely to spur capital inflows and strengthen Malaysia’s financial markets, Choy said.
“This will continue to support more portfolio inflows. So we have seen a little bit of recovery in the latest data point for foreign bond inflows into Malaysia reflecting this cautious optimism,” he added.