Summary

• Malaysia’s 4Q2024 economy started on a strong note, with October’s Industrial Production Index (IPI) expanding by 2.1% (Sep: 2.3%), driven by a 3.3% growth in the manufacturing sector. Private consumption remained robust, as indicated by a year-to-date (YTD) increase in passenger vehicle sales, supporting an overall growth forecast of 5.1% for 2024.
• Following Trump’s electoral win in November, foreign outflows in the local capital markets continued. However, although outflows in equities increased, foreign outflows from the bond market tapered down.
• Global bond markets showed divergence, with US Treasury (UST) yields increasing significantly by 17 to 36 basis points (bps) due to a hawkish US Federal Reserve (Fed), while Chinese government bond yields fell by 25-32 bps to record lows following pledges for looser monetary policy. Malaysian government bond yields trended similarly to the USTs, increasing 1-7 bps, while corporate bonds’ yield trends were mixed.
• In 2025, Malaysia’s government bond auctions will increase focus on long-term tenors (15y-30y), making up half the total auctions. Gross issuance is projected to decline to RM163.4 billion (RM176.7 billion), while net issuance is expected to drop to RM80 billion, the lowest since 2021.
• The US and eurozone are expected to follow different policy rate paths, with the Fed signalling limits to rate cuts due to sticky inflation (Dec: 2.7%; Nov: 2.6%) and projecting only two rate cuts in 2025, while market-implied European Central Bank (ECB) rate cuts remain higher at four to five, supported by slower economic growth and lower inflation (Harmonised Index of Consumer Prices (HICP) for Nov: 2.2%; Oct: 2.0%). We forecast Malaysia’s inflation to rise to a manageable 2.6% in 2025 (2024F: 1.9%), and we expect Bank Negara Malaysia (BNM) to maintain its overnight policy rate at 3.0%.