Fixed Income

Why Fixed Income

Malaysia is among the most advanced countries in Asia in terms of the development and use of bonds to raise funds. It has the third largest bond market relative to GDP in Asia after Japan and South Korea, and is the largest in ASEAN in terms of absolute size.

Recently, most of the bonds issued in Malaysia have been predominantly Shariah compliant, with sukuk or Islamic bonds accounting for 56% of total Malaysian bonds outstanding, while conventional bonds accounted for 44% of total bonds outstanding as at 30th June 2017, reflecting the rise in demand for Islamic fixed income instruments. Malaysia is a global leader in sukuk issuance and has consistently maintained over 50% of the global sukuk market.

Source: Securities Commission Malaysia


As at first half of 2017, the fixed income market accounted for RM1.25 trillion or 40% of the total capital market value of RM3.09 trillion, with equities accounting for the remaining 60%. The GDP amounted to approximately 95% of Malaysia’s fixed income market, highlighting the depth and width of the market relative to the size of the economy.

The bond market continues to be a very important source of primary financing. As at end of 2016, primary market issuances amounted to RM86.7 billion, of which RM85.7 billion (or almost 99%) was raised in the corporate bond market, and the remaining RM1.0 billion was raised via new equity issuances including 11 Initial Public Offerings (IPOs).

Source: Securities Commission Malaysia, Bursa Malaysia, Bank Negara Malaysia


Foreign ownership of corporate bonds issued in Malaysia decreased marginally by 0.4% to RM215.6 billion at end-2016 from RM214.8 billion in 2015, accounting for 18.4% of total bonds outstanding. The biggest decline was between June and August last year as foreign investors trimmed 6.7% of their holdings in light of the depreciating ringgit. Nevertheless, foreign outflows were relatively well absorbed by strong domestic liquidity.

Notwithstanding outflows, foreign holdings in Malaysian Government Securities (MGS) remained stable, amounting to 47.1% of total MGS outstanding as at end 2016, reflecting investors’ long-term positive outlook on Malaysia.

Low and stable foreign ownership in corporate bonds offered relief to the market from the impact of global volatility and reversal of fund flows from emerging markets. Foreign ownership of corporate bonds was mainly concentrated on AAA papers ranging from mid to long-term tenures. The maturity profile of local corporate bond issuances shortened for the year due to higher demand for more liquid and shorter dated papers on the back of market volatility.


The Malaysian fixed income market remains vibrant, supported by strong demand from a global pool of steadfast investors. According to Securities Commission Malaysia (SC) the bond market is an important source of funds as evidenced by the compounded annual growth rate of 10% over the last decade.

Malaysia has developed deep experience in structuring and raising funds in both the conventional and Islamic fixed income market, and is widely recognised as being the leading international marketplace for sukuk issuances.

Foreign companies, including well-known corporate names, have also demonstrated their confidence in the Malaysian fixed income market by choosing Malaysia as their preferred base for bond issuances. Examples include: Bank of Tokyo-Mitsubishi UFJ (which issued the first Japanese sukuk in Malaysia in 2014); and Turkiye Finans (which was the first Turkish lender to issue a sukuk in Malaysia in 2014).

The bond market grew 6.8% from RM 1.17 trillion at end of 2016 to RM 1.25 trillion in the first half of 2017. The Malaysian bond market is expected to continue to grow strongly to a value of RM2.1 trillion (US$684 billion) by 2020. The expected strong growth is reflected in the compounded average annual growth rate of 10% from 2006-2016.

The growth opportunities in the bond market are also expected to further escalate as the entry point projects under the Malaysian Government's Economic Transformation Programme (ETP) and National Transformation (N50) progress into implementation.

Under these programmes, potentially high-growth projects, including large infrastructure projects such as the second phase of the mass rapid transit system for the capital city Kuala Lumpur and a large petroleum complex in Pengerang, Johor, will be fast-tracked and implemented. There are also an increasing number of new start-up companies from the N50 initiative.

The depth of the market provides sufficient capacity for portfolios to be rebalanced across maturities in an orderly manner. This is because of the presence of large domestic retirement and other funds as well as financial institutions that buy and hold bonds for the long-term.

The biggest funds in Malaysia are managed by the Employees Provident Fund (EPF) with total investment assets as at end-2016 of RM731 billion, up 6.81% from a year ago. EPF is by far the largest single fixed-income player in the domestic market with 48.58% of EPF’s investments invested in fixed income instruments.

The range of debt securities issued has in part assisted in increasing the types of products available to cater to an increasing demand for innovation and portfolio diversification from investors.

The focus on product diversity forms part of the efforts by SC in deepening and developing the country’s fixed income market, and in turn increasing liquidity. Some of these products include asset-backed securities, perpetual bonds, agro sukuk, and stapled securities, among others. The Malaysian economy is expected to remain on a growth trajectory in 2017 and is well-poised to grow beyond 5%, Malaysian Central Bank, Bank Negara Malaysia’s (BNM) GDP target of between 4.3% and 4.8%. According to BNM, the first half of 2017 has seen a tremendous increase in the Malaysian GDP of 5.8%, exceeding its initial GDP target of between 4.3% and 4.8%.

Growth will continue to be steered by domestic demand and recovery in some advanced economies will sustain demand for Malaysian exports, growing foreign direct investments (FDIs) with large scale investments expected from China, India and Saudi Arabia and the anticipated launch of the first phase of the Digital Free Trade Zone (DFTZ) in October 2017. Monetary policy will meanwhile remain accommodative to support sustainable growth and ensure sufficient liquidity in the financial system.

The Malaysian capital market is resourced with ample domestic liquidity which will help the market remain resilient in the face of volatile global capital flows. In the bond market, yields are expected to respond to the upward pressure arising from the expected normalisation of US interest rates. This may lessen foreign selling in the bond market and potentially attract new investors.

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