Malaysia’s external sector remains on a firm trajectory, with exports expanding by 7.0% in November (Oct: 15.7%). Growth was supported by resilient demand for electrical and electronic (E&E) products at 15.0% (Oct: 26.5%) alongside a recovery in petroleum exports. Performance among trading partners also remained robust, with shipments to China accelerating to 9.3% (Oct: 7.5%), while the rest stayed broadly supportive. MARC Ratings expects this momentum to carry into 2026, underpinned by sustained demand for E&E products amid the ongoing artificial intelligence (AI) upswing and rising data centre investments.

Malaysia’s inflation edged up marginally to 1.4% in November (Oct: 1.3%). The rise was mainly driven by the alcohol and tobacco (Nov: 2.4%; Oct: 0.3%), transportation (Nov: 0.2%; Oct: -0.1%), and education (Nov: 2.6%; Oct: 2.4%) sectors, but offset by stable food and beverage prices (Nov: 1.5%; Oct: 1.5%) as well as softer housing and utilities prices (Nov: 0.7%; Oct: 1.1%). Inflation is expected to remain contained through 2026, with fading spillover effects from earlier implemented policy reforms in 2025. Should the anticipated income gains for civil servants and the potential for another overnight policy rate cut reinforce consumer-driven inflation, we believe the effect is likely to be temporary. We expect inflation to average 1.6% in 2026, below both the post‑pandemic mean (2022–2024: 2.3%) and the pre‑pandemic average (2017–2019: 1.6%).

The ringgit rallied 9.7% year‑to‑date as of 22 December, consolidating its position as Asia’s top performing currency, underpinned by contained inflation levels, sustained foreign bond inflows and improving prospects on the Malaysian Government Securities – US Treasuries (MGS-UST) yield differentials in favour of Malaysia. Looking ahead, the ringgit is projected to appreciate towards 3.93 USDMYR by mid‑2026, supported by deeper interest rate easing by the Federal Reserve (Fed), with markets pricing in at least two Fed rate cuts and a 33%–45% probability of a third cut. In addition, the ringgit is also expected to derive support from trade initiatives announced at the 47th ASEAN Summit, which will bolster the current account surplus through stronger exports and reinforce ringgit strength.

In November, foreign portfolio inflows accelerated to RM4.9 billion (Oct: RM1.7 billion), led by bond inflows of RM6.1 billion (Oct: RM4.4 billion), while equities posted net outflows of RM1.2 billion (Oct: -RM2.7 billion). Foreign holdings of MGS/ Government Investment Issues (MGS/GII) edged higher to 21.4% (Oct: 21.3%). Inflows should remain resilient, anchored by a stronger ringgit, contained inflation and a fiscal deficit narrowing further to 3.5% of gross domestic product in 2026 (2025: 3.8%). Furthermore, structural tailwinds from the global AI capex cycle will boost corporate earnings and sustain foreign portfolio inflows into Malaysia. MTD 22 December, MGS yields at the belly and long end of the curve firmed 2–10 bps, driven by softer auction demand, a mild November inflation uptick, and weather‑related risk premium stemming from November’s monsoon season. Looking ahead, MGS yields are expected to ease on resilient domestic fundamentals and AI-driven tailwinds given its integral role in the semiconductor value chain. We expect MGS yields to consolidate within a fair‑value range of 3.35%–3.40% as markets transition into 2026. In terms of the 2026 bond auction calendar, auctions are expected to increase marginally to 37 (2025: 36). Moreover, up to 17 private placements (2025: 17), skewed towards longer‑dated maturities, are likely to facilitate smoother absorption at the long end.