Uncertainty and Geopolitical Risks to Influence Malaysia’s Capital…

The SC projects that the Malaysian capital market in 2025 will face uncertainties and geopolitical risks, impacting global supply chains and trade. The new US administration may create additional foreign policy risks. Economic slowdown in China and US trade restrictions could have adverse effects on global markets. Concentration in local investor trading and Bursa Malaysia’s market capitalization may affect liquidity and attractiveness for value investors.

The Securities Commission Malaysia (SC) has articulated that the Malaysian capital market in 2025 will be shaped by various risk factors, notably uncertainties in financial conditions. The SC reported that escalating geopolitical conflicts are significantly challenging global business resilience, disrupting vital transportation routes and consequently threatening global supply chains, the commodity market, and food security as outlined in the Capital Market Stability Review 2024.

Furthermore, the SC highlighted that the new administration in the United States could exacerbate foreign policy risks impacting international businesses. Policies involving tariffs, investment restrictions, sanctions, and industrial strategies are likely to increase competition with geopolitical rivals, alter strategic supply chains, and inject additional risks into trade and investment activities.

China’s slowing economic growth, combined with potential upcoming trade restrictions from the United States, could adversely affect global trade and commodity markets. The SC anticipates that policy rates in developed markets will likely remain elevated for an extended period, albeit with a divergence observed between the US and Europe.

The geopolitical landscape is currently volatile; escalations in conflicts may result in economic fragmentation, impacting the domestic capital market and prompting global investors to seek safer assets, potentially amplifying market volatility. Increased occurrences of sentiment-driven market fluctuations are also expected due to the interconnectedness of global markets.

Despite global and local challenges, including a panic selloff in August, US Federal Reserve interest rate cuts, and the recent US presidential election, the Malaysian equity market demonstrated resilience throughout 2024. However, the SC noted that trading activities in this market remain heavily dominated by local institutional investors, suggesting reduced diversity. This could lead to crowded trades and overreactions as investors may exhibit similar trading behaviors.

Additionally, Bursa Malaysia’s market capitalization shows a concentration on FBM KLCI counters, which raises concerns regarding long-term market depth and liquidity risks. Such concentration negatively affects the attractiveness of the Malaysian equity market, particularly for value investors while hindering its inclusion in global indices.

In summary, the Malaysian capital market is confronting significant challenges due to geopolitical risks and uncertainties in financial conditions. The upcoming US foreign policy adjustments and developments in China’s economic growth are poised to further complicate the investment landscape. Additionally, the concentrated trading activities among local institutional investors present potential risks to market liquidity and overall attractiveness. The SC’s observations indicate a cautious outlook as these factors could significantly influence market dynamics in 2025.

Original Source: www.bernama.com