2024 Positioned for Robust Capital Market Performance

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2024 Positioned for Robust Capital Market Performance
New issuances in Main and ACE Markets will boost investment opportunities and domestic equity market vibrancy 

Monday, October 16th, 2023

THE Finance Ministry’s Economic Outlook for 2024 reveals a robust performance in the capital market, with gross funds raised surging by projected 11.4% to RM184.1 billion. This surge can be attributed to increase in fundraising activities across both public and private sectors. 

Within the private sector, gross funds raised through new corporate bonds saw a remarkable 11.8% increase, totalling RM67.1 billion. This surge was primarily driven by medium-term notes (RM65.3 billion), straight bonds (RM1.02 billion) and Islamic bonds (RM865.6 million), even in a more stringent financing environment. 

“Most of the funds were raised by finance, insurance, real estate and business services accounting for 55.6%; electricity, gas and water (21.8%); and construction (9.3%) sectors. 

“These funds were primarily used to finance working capital, new projects and refinancing,” it said in the report. 

On the other hand, the domestic equity market recorded RM2.9 billion in the same period, driven by IPOs. 

The new issuances in Main and ACE Markets include consumer, industrial, construction, technology, property and healthcare products will boost investment opportunities and domestic equity market vibrancy. 

The Federal Goverment Budget 2024

Moreover, Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) issuances increased by 8.3% to RM57.4 billion and 13.5% to RM56.6 billion, respectively, reflecting the government’s financial requirements and maturity profile. Foreign holdings remained at 36.6% (MGS) and 10.2% (MGII), respectively, as at the end of July. 

“Malaysia’s debt market continued to be supported by a diverse group of institutional and foreign investors, complemented by the deep and liquid secondary bond market,” it added. 

In the first seven months of 2023, MGS and corporate bond yields declined across all tenures which was driven by market expectations of policy rate peaking and global macro developments. 

Market expectations of the policy rate reaching its peak led to a decrease in benchmark yields on one-year, three-year, five-year and 10-year MGS by two basic points (bps), 18bps, 26bps and 26bps, respectively. 

Global macro developments, including US inflation easing and banking turmoil influenced the trend, with one-year, three-year, five-year and 10-year MGS yields closing at 3.24%, 3.49%, 3.60% and 3.83%, respectively. 

Corporate bond yields decreased for AAA-rated (42bps), AA-rated (42bps), and A-rated securities (10bps), while BBB-rated corporate bond yield increased by 21 bps and closed at 7.01% during the first seven months of 2023. 

“Nonetheless, Malaysia’s BBB-rated corporate bond yield trended slightly higher, driven by investors seeking corporate bonds with relatively safer credit ratings in light of risk-off sentiment following US banking distress. 

“Overall, the yield trend in the corporate debt market generally points towards the expectation of lower interest rates, signalling lower borrowing costs, which will be an advantage to many businesses,” it said. 

Household Income

Local sukuk and bonds are expected to be crucial financing instruments for various programmes and projects in the National Energy Transition Roadmap, New Industrial Master Plan 2030 and Mid-Term Review of the 12th Malaysia Plan. 

MGS, MGII, corporate bonds and sukuk’s outlook remains positive due to sustained economic growth, manageable inflation and Bank Negara Malaysia’s rate hike cycle conclusion, but external factors may pose short-term market volatility risks. 

Furthermore, the local equity market faced external challenges in early 2023, with the US Federal Reserve predicting interest rate hikes and China’s reopening indicating positive global economic spillover. 

“These factors improved risk sentiments but were not sufficient to propel the FTSE Bursa Malaysia KLCI (FBM KLCI) to close the month at a higher level with the Index declining by 0.7% to 1,485.5 points as at end-January (end-December 2022: 1,495.49 points). 

“The lacklustre performance can be attributed to various factors including uncertainties surrounding global economic growth which affected investor sentiment,” the report explained. 

The FBM KLCI fell 6.8% year-to-date to 1,393.83 points on March 14, below the psychological level of 1,400 points due to banking sector turmoil in the US and Switzerland. 

Investors were cautious about potential contagion effects, increased Overnight Policy Rate in May, and slower economic activity in Europe and weak domestic corporate earnings. 

Islamic banking’s market share increased by 8.1% to RM844.1 billion in 2023, accounting for 36.4% of the total and outpaced the conventional banking sector while its assets expanded by 9.1%. 

The outlook is promising due to a mature ecosystem and progressive digital strategy. 

“In addition, Malaysia’s strong commitment to the social finance agenda is reflected in the anticipated third cohort of the Value-based Intermediation (VBI) Financing and Investment Impact Assessment Framework (VBIAF) Sectoral Guides to be released by the year-end that integrates environmental, social and governance (ESG) risk considerations in financing and investment decisions. 

“The integration of VBI and social finance will further position the nation as a frontier in addressing sustainability goals through shariah-compliant financing that balances social and environmental needs with economic development,” it said. 

The Islamic Capital Market in Malaysia is leading in fundraising and investing, with a domestic size of RM2.4 trillion, accounting for 64.4% of the total capital market size as at the end of July 2023. The sukuk market is becoming more attractive to investors, with sukuk issuances reaching 61.7% of total issuances in the first seven months. 

The Capital Market Masterplan 3 aims to make the market more relevant to Malaysia’s economic development by 2025, focusing on digital savviness, sustainable investment and Islamic social finance. 

“The goal is to achieve an efficient and effective capital market that channels capital into productive sectors as well as fosters diversity and competition. 

“Towards this end, the Securities Commission Malaysia continues to focus its efforts on raising domestic investors’ digital savviness and positioning fintech to promote solutions in the halal economy, sustainable and responsible investment, and Islamic social finance,” the report said. 

Capital Markets

This article first appeared in The Malaysian Reserve weekly print edition

Source: The Malaysian Reserve

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