Summary

• Malaysia’s economic growth remained resilient in 3Q2026, exceeding market expectations. Gross domestic product (GDP) grew by an estimated 5.3% (consensus: 5.1%; 2Q2026: 6.0%), supported by manufacturing (+7.5%) and services (+5.4%). Construction growth moderated but remained above its pre-pandemic trend.
• Exports reached a record high in September, while inflation remained contained. Exports surged by 54.5% (August: 45.4%) to a record RM215.1 billion, led by electrical and electronics (E&E) (+69.2%), with broader gains across technology-related products. Meanwhile, headline inflation eased to 1.8% (August 2026: 1.9%) while core inflation remained stable at 1.7%. Furthermore, Budget 2027 maintains gradual fiscal consolidation, with the fiscal deficit projected to narrow to 3.3% of GDP in 2027 (2026: 3.6%).
• The ringgit appreciated by 0.26% against the US dollar month-to-date (MTD) as of 28 October, reaching 4.08 USDMYR. Stronger exports widened September’s trade surplus to RM33.7 billion (August: RM28.1 billion), providing a supportive backdrop for the ringgit. In addition, Budget 2027’s fiscal consolidation strategy reinforced investor confidence in Malaysia’s fiscal outlook, further lending support to the ringgit. Under this strategy, the fiscal deficit is targeted to narrow to 3.3% of GDP in 2027 (2026: 3.6%). Of note, the US Federal Reserve (Fed) left the federal funds rate unchanged on 28 October, at an upper bound of 4.00%. Looking ahead, higher energy prices could sustain inflationary pressures and reinforce the Fed’s hawkish policy trajectory. Nevertheless, MARC Ratings maintains its end-2026 forecast at 4.00–4.15 USDMYR, underpinned by resilient domestic fundamentals.
• Foreign investors recorded net outflows of RM1.8 billion from Malaysian debt securities (August: +RM15.9 billion), driven by government-bond outflows of RM3.7 billion (August: +RM11.1 billion). Corporate bonds remained resilient, attracting RM1.9 billion in net inflows (August: +RM4.8 billion). Consequently, foreign holdings of Malaysian Government Securities/ Government Investment Issues (MGS/GII) edged down to 20.5% of the market in September (August: 20.6%). Meanwhile, foreign investors recorded net equity outflows of RM1.6 billion in September, moderating from -RM2.0 billion in August.
• MGS yields declined across the curve MTD as of 28 October. The three-year MGS yield fell by 6.7 bps to 3.42%, the five-year yield by 8.9 bps to 3.70%, the 10-year yield by 9.4 bps to 3.95% and the 20-year yield by 2.8 bps to 4.29%. Budget 2027’s fiscal consolidation path likely supported the MGS rally by easing concerns over prospective government bond issuance. Meanwhile, softer September inflation of 1.8% (August: 1.9%) provided a supportive backdrop for domestic bonds. Nevertheless, ongoing Middle East tensions, a hawkish global monetary policy outlook and resilient domestic growth are likely to keep the broader yield environment elevated. Accordingly, MARC Ratings revised its end-2026 forecast for the 10-year MGS yield to 3.85%–3.95% (previously 3.75%–3.85%) and its 2027 forecast to 3.95%–4.05% (previously 3.85%–3.95%).