Malaysia’s economy demonstrated resilience in the third quarter of 2024, with GDP growth reaching 5.3% (1H2024: 5.1%). Manufacturing growth accelerated to 5.6% (1H2024: 3.3%) while the positive investment cycle remains fuelled by a surge in capital imports. Exports saw a rebound in October, following a minor setback in September. Despite rising global uncertainties, especially after the Republican sweep in the recent US election, Malaysia is poised to benefit from potential trade diversion.

Nonetheless, local capital markets and the ringgit faced challenges in October, as foreign inflows tapered, giving way to significant outflows. This was due to investors adopting a more cautious stance ahead of key events in November, including the US election outcome and the Federal Reserve’s (Fed) meeting.

In November, global bond markets exhibited contrasting trends, with US bonds diverging from the rally in other regions. US bond yields rose despite expectations of a rate cut, reflecting a strong economy and shifting rate cut expectations. As a result, the US dollar strengthened, while the ringgit experienced a moderate depreciation. We note that the 10-year US Treasury yield has retreated after peaking near 4.50%, driven by increased buying interest as yields became more attractive, while fears over excessive fiscal spending in the US moderated.

In contrast, Malaysian government bonds rallied in November, although the decline in yields did not fully offset the rise in October. This movement was primarily driven by domestic factors, including positive fiscal targets, following a muted market response in the previous month. Meanwhile, corporate credit spreads inched higher, reflecting investor caution after a year-long compression of spreads amid the broader market rally.

European bond markets demonstrated resilience, buoyed by a more favourable inflation outlook in the eurozone and expectations that the European Central Bank (ECB) will reduce rates in December. Meanwhile, Chinese government bond yields decreased as part of efforts to stimulate growth. The contrasting inflation trajectories between the US and the eurozone suggest that the Fed and ECB are likely to pursue uneven monetary easing in the coming months. Nonetheless, both central banks are expected to cut rates in December.