KUALA LUMPUR, Dec 26 — As they say, when the United States sneezes, the world catches a cold.

Global markets have been seesawing erratically since the beginning of the year when the US was shaken by a series of bank failures which led to the spiral of debt costs and risks of recession, culminating in a downgrade to its credit rating outlook by rating assessors such as Moody’s and Fitch.

The world’s capital markets were also rattled by the US Federal Open Market Committee’s (FOMC) hawkish interest rate hikes that disconnected from other central banks’ rate cut decisions due to the conflict-induced humanitarian crisis in the Middle East.

Fixed-income asset, equity and foreign exchange markets suffered massive outflows, as investors sought shelter in defensive assets.

During the 2022-2023 cycle, the FOMC has raised the federal funds rate 11 times, placing it at a 22-year high of 5.25-5.50 per cent compared with 0.25-0.5 per cent in March 2022.

Fortunately, Malaysia’s ability to maintain financial resilience and economic stability, anchored by firm domestic demand, has fortified its capital market as a solid platform to raise funds.

According to the Finance Ministry’s (MoF) Economic Outlook 2024 report, the Islamic capital market’s size stood at RM2.4 trillion as of end-July 2023, accounting for 64.4 per cent of the total capital market’s size in Malaysia.

The size of the entire capital market stood at RM3.73 trillion as of July 2023, surpassing last year’s figure of RM3.6 trillion, which comprised total bonds and sukuk outstanding of RM1.9 trillion, and equity market capitalisation of RM1.7 trillion.

Last month, Securities Commission Malaysia (SC) chairman Datuk Seri Dr Awang Adek Hussin said that as of October 31, 2023, the nation’s bond and sukuk market has an outstanding value of RM2 trillion, representing more than 50 per cent of the Malaysian capital market.

Meanwhile, Bursa Malaysia’s market capitalisation was reported at RM1.76 trillion in October 2023.

Islamic fundraising provides tailwind for capital market

The Islamic capital market has continued to lead the country’s fundraising and investing landscape in 2023.

Awang Adek said the Malaysian bond and sukuk market is one of the most developed and largest markets in the region.

"Representing 35 per cent of global sukuk issuance, Malaysia is indeed the largest sukuk market, ahead of Saudi Arabia and Indonesia,” he told a bond and sukuk conference in November.

MARC Ratings said Malaysia stands to gain from the convergence of the Islamic capital market and sustainable finance, with environmental, social, and governance (ESG) sukuk showing growth potential. ESG sukuk had a 3.8 per cent share of global outstanding sukuk in the first half of 2023.

As for bonds, the rating agency said that while the MSCI Apex 50 and S&P Asia 50 CME equity indices were quite flat at under +1.0 per cent for year-to-date Dec 4, 2023, the 10-year Malaysian Government Securities (MGS) performed better by 20 basis points, suggesting a constructive market.

Several bond markets have also performed better by the end of 2023 owing to the change in narrative, whereby interest rates are expected to peak soon, it said.

MIDF Research’s recent data showed that MGS’ foreign holdings increased to RM273 billion in November 2023 from RM248 billion in the same month last year.

It was also reported that foreign investors had been net buyers in the local bond market in the first eight months of 2023 with an inflow of RM27.4 billion.

Measures to groom and grow MSMEs

In terms of capital raising, Malaysia continues to look at alternative financial instruments to support the growth of the micro, small and medium enterprises (MSMEs), which are an integral part of the economy that contributed about 38 per cent of Malaysia’s gross domestic product and 48 per cent of total employment in 2022.

In Budget 2023, the government continued its initiative to bridge the financing gap with a RM40 million additional allocation to the Malaysia Co-Investment Fund (MyCIF) to co-invest in MSMEs and social enterprises alongside private investors via equity crowdfunding and peer-to-peer financing platforms as well as the setting up of the Digital Innovation Fund to encourage technology investments by smaller capital market players.

MyCIF, first introduced in Budget 2019, saw its allocation raised by a further RM100 million over a three-year period in Budget 2024.

In June 2023, Prime Minister Datuk Seri Anwar Ibrahim announced that the MoF and SC will look at policies to facilitate and attract the setting up of family offices in Malaysia to attract a larger pool of investors to support financing for SMEs.

Apart from that, a slew of measures was introduced to enhance investor access to the country’s capital market, including automatic promotion of eligible public listed companies from the ACE Market to the Main Market of Bursa Malaysia, a reduction in stamp duty, enabling fractional share trading by investors through stockbrokers, and introduction of the Foreign Exempt Scheme framework.

Meanwhile, the SC and SME Corporation Malaysia teamed up recently to create about 200 capital market-ready MSMEs by 2026 and to strengthen the familiarity of 300 MSMEs with sustainability disclosures and corporate governance best practices.

The SC also collaborated with Capital Markets Malaysia to introduce the Simplified ESG Disclosure Guide (SEDG) to guide SMEs in their adoption of sustainability.

Volatile year for Bursa Malaysia

Zooming into the equity market, 2023 has been a relatively volatile year for Bursa Malaysia, as the local exchange endured net foreign fund outflows amounting to a whopping US$928.2 million in the first two quarters of the year.

It only saw net foreign buying of US$488.1 million in the third quarter, buoyed by rising hopes about a pause in US interest rate hikes.

Nevertheless, net foreign inflows to the local stock market began to improve in December 2023 following the US Federal Reserve’s decision to hold the interest rates between 5.25 and 5.50 per cent during its last two-day meeting for the year ended December 13.

For the year up to December 15, Bursa Malaysia saw net foreign fund outflows of US$572.7 million, with the key market barometer, the FTSE Bursa Malaysia KLCI (FBM KLCI), falling by 0.78 per cent to close at 1,462.45 from 1,473.99 on Jan 3, being the first trading day of the year.

On December 22, the index ended at 1,454.38, down 1.33 per cent from 1,473.99 at market close on Jan 3.

Research houses have predicted that the FBM KLCI would end the year within the 1,500-1,610 range.

There were 32 initial public offerings listed on Bursa Malaysia in 2023 compared to the exchange’s target of 39 for the year.

Of the total, seven were on the Main Market, 24 on the ACE Market, and one on the LEAP Market.

Cloudy outlook for 2024

Moving into 2024, the prospects for the capital market seem a bit gloomy, clouded by key risks such as the possibility of the US and Europe falling into recession following the cumulative series of interest rate hikes, according to MARC Ratings.

Another risk is that inflation in advanced economies may fail to return to central banks’ targets, which could complicate monetary policy and lead to market volatility, it said.

"However, since the global economy has gone through Covid-19, US bank failures, China’s property market malaise, tight global monetary policy, and twin geopolitical risks in Europe and the Middle East, we would say resilience to multiple crises has improved, and there is a good chance the majority of bad news has been priced in.

"That said, risk management initiatives remain ever more relevant in the face of continuously evolving uncertainties,” the rating agency said. — Bernama