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.

More recently, most of the bonds issued have been predominantly Shariah compliant, with sukuk or Islamic bonds accounting for 54% of total Malaysian bonds outstanding, while conventional bonds accounted for 46% of the remainder as at end-2015, reflecting the rise in demand for Islamic fixed income instruments. Malaysia is a world market leader in sukuk issuance and has consistently maintained over 50% of the global sukuk market.

Source: Securities Commission Malaysia


As at end-2015, the fixed income market accounted for RM1.12 trillion or nearly 40% of the total capital market value of RM2.82 trillion, with equities accounting for the remaining 60%. The RM1.12 trillion amounted to 94% of GDP, indicating 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. In 2015, primary market issuances amounted to RM90.4 billion, of which RM86.4 billion (or almost 96%) was raised in the corporate bond market, and the remaining RM3.91 billion raised via Initial Public Offerings (IPOs).

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


Foreign ownership of corporate bonds issued in Malaysia decreased by 4.9% to RM214.8 billion at end-2015 from RM225.9 billion a year ago, accounting for 19.1% 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 falling 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 47.7% of total MGS outstanding as at end-2015, 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 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. The bond market is an important source of funds as evidenced by the compounded annual growth rate of 10.4% 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 are: 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 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 10.4% from 2005-2015.

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) progress into implementation.

Under this programme, potentially high-growth projects, including large infrastructure projects such as a mass rapid transit system for the capital city Kuala Lumpur and a large petroleum complex, will be fast-tracked and implemented.

The depth of the market provides absorptive 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-2015 of RM685 billion, up 7.5% from a year ago. EPF’s funds are set to grow strongly with annual contributions in 2015 at RM60 billion.

The EPF is by far the largest single fixed-income player in the domestic market. As at 31st December 2015, the held-to-maturity investment assets amounted to RM220 billion, all in fixed income. This accounts for nearly a fifth of the fixed income market.

The RM220 billion in fixed income assets are long-term investments and provide stable holdings as they will not be in traded in the market. Including other domestic fixed income exposure under available-for-sale (AFS) financial assets, EPF’s investment in the fixed income market increases by RM37 billion to RM257 billion or 23% of the fixed income market.

This provides an anchor of stability for the fixed income market over and above the holdings of financial institutions in fixed income instruments for income and liquidity purposes. Hence, Malaysia is not significantly affected by the withdrawal of foreign portfolio funds that other emerging bond markets have experienced in recent times.

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 the Securities Commission Malaysia (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 2016, albeit with the expansion in GDP moderating slightly to around 4.0% – 4.5%. Growth will continue to be steered by domestic demand while recovery in some advanced economies will help to sustain demand for Malaysian exports. The recalibration measures in respect of the 2016 Federal Government Budget announced in January 2016 reflects the government’s commitment towards its scale consolidation agenda, with lower forecast revenue addressed by expenditure adjustment and re-prioritization of development projects. Monetary policy will meanwhile remain accommodative to support sustainable growth and ensure sufficient liquidity in the financial system.

The Malaysian capital market will continue to be impacted by volatility in global liquidity flows emanating from the US Fed interest rate hike, the slowdown in China and weak commodity prices. Furthermore, China’s structural change is expected to provide more headwinds for small open economies such as Malaysia. Notwithstanding this, the domestic 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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