Global funds bought over US$2 billion in Malaysian corporate and sovereign bonds as of March 19, marking the highest inflow in 10 months, according to the latest data from Bank Negara Malaysia. By contrast, debt markets in Thailand and Indonesia experienced capital outflows last month.
Outflows from some of Southeast Asia’s bonds reflect a broader retreat from the emerging markets. Global emerging-market exchange-traded bond funds recorded a cumulative exodus of nearly US$1 billion in the month through March 27, according to data compiled by Bloomberg.
Malaysia’s decoupling stems from a projected oil-revenue windfall that cushions the economy while rising crude prices from the Iran war pressure finances of other nations. The fiscal support also anchors inflation, buoying Malaysian sovereign bonds and the ringgit as regional peers struggle.
“Malaysia’s bond market continues to attract foreign demand due to its macro stability, a firmer ringgit relative to Asean peers and fiscal consolidation,” said Peerampa Janjumratsang, a portfolio manager for fixed income at M&G Investments in Singapore.
She expects Malaysian bonds to remain relatively stable during the Iran conflict and maintain an overweight position.
A recent Bloomberg study of five energy shocks since 2022 — ranging from the start of the Ukraine war to the latest Middle East conflict — ranks Malaysian bonds as one of the most resilient in emerging Asia.
That performance is underpinned by Malaysia’s commitment to protect local consumers from rising oil prices.
The government signaled it will maintain subsidised fuel prices, despite a reduction in the monthly quota. The move contrasts with Thailand’s recent diesel subsidy cuts and a national energy emergency declaration in the Philippines.
Malaysia’s fiscal consolidation and expectations of larger oil-related revenue give room for the government to provide support and subsidies against these energy related shocks, M&G’s Peerampa said.
Meanwhile, expectations for Bank Negara Malaysia to stay neutral while hawkish bets build in the region are also supporting local bonds. That’s because BNM expects inflation to remain moderate between 1.5% and 2.5% this year.
Ringgit interest-rate swaps price policy rates to remain unchanged for the next 12 months. In contrast, won and baht swaps indicate between one to four 25-basis point rate hikes during the same period, while Philippine peso swaps price a quarter-point increase within three months.
“Domestic inflation is cushioned by fuel subsidies, and BNM is likely to look past cost-push pressures in the absence of accompanying demand-pull dynamics,” Winson Phoon, head of fixed‑income research at Maybank Securities, wrote in a note.
The bank raised its forecast for Malaysian bonds to “mildly bullish”.