Summary

• Malaysia’s economy outperformed expectations in 2Q2026, with final gross domestic product (GDP) growth revised up to 6.0% (advance estimate: 5.8%; 1Q2026: 4.4%), supported by broad-based growth across the services, manufacturing, construction and mining sectors. Data-centre investment and the global technology upcycle continued to support activity, while resilient labour conditions and contained inflation reinforced the domestic outlook. MARC Ratings has revised its 2026 headline inflation forecast to 1.9% (previously: 2.1%).
• Exports remained exceptionally strong, rising 38.0% in July (June: 45.5%) to a record RM193.6 billion, led by electrical and electronic (E&E) exports amid the global artificial intelligence (AI) investment cycle and supported by stronger machinery, petroleum and liquefied natural gas (LNG) exports. Continued disruptions to Middle Eastern energy supplies could further support Malaysia’s LNG exports through supply diversification, while strong US demand for E&E products should sustain external momentum.
• As of month-to-date (MTD) 24 August, the ringgit strengthened to around 4.04 USDMYR from 4.09 USDMYR at end-July. External trade was a key source of support, with exports continuing to expand in July and maintaining double-digit growth since April. While a stronger US dollar and higher-for-longer US Treasury (UST) yields may continue to cap ringgit upside, resilient macroeconomic fundamentals, robust exports and sustained foreign direct investment (FDI) inflows should continue to provide support for the ringgit. We maintain our ringgit forecast at 4.00–4.15 USDMYR until end-2026.
• Foreign bond flows reversed to a net outflow of RM5.6 billion in July (June: +RM4.9 billion), reducing foreign holdings of bonds to 20.1% (June: 20.6%) of the market. Higher UST yields increased the relative appeal of US Treasuries. In contrast, foreign equity flows turned positive at RM0.2 billion (June: -RM2.5 billion), supported by stronger domestic growth. Looking ahead, Malaysia’s stable outlook and resilient macroeconomic fundamentals should continue to support relative foreign demand for Malaysian Government Securities (MGS), amid rising sovereign credit risks in the region, such as the outlook downgrades for Indonesia and the Philippines in 1H2026.
• As of MTD 24 August, MGS yields rose by approximately 4–13bps across the curve. The sell-off reflected stronger-than-expected domestic growth, which gives Bank Negara Malaysia (BNM) greater scope to normalise the Overnight Policy Rate (OPR) towards 3.00% over time, from 2.75% currently. MGS yields also tracked spillovers from higher global bond yields, which exerted additional upward pressure on the curve. Against this backdrop, we revise our end-2026 10-year MGS yield forecast to 3.75%–3.85% (previously 3.60%–3.70%), with 2027 projected at 3.85%–3.95%. The revision reflects a hawkish repricing of Federal Reserve (Fed) expectations, with the recent Jackson Hole Symposium reinforcing higher-for-longer policy expectations, alongside a firmer US dollar and scope for anticipated OPR normalisation.