Malaysian Capital Market Developments in 2023

The Malaysian economy continued to grow in 2023, albeit at a moderate pace, underpinned by resilient domestic private sector activities against the backdrop of challenging global trade. The labour market strengthened further, with the unemployment rate improving to a three-year low and supporting wage growth. By economic activity, the services sector continued to lead growth amid higher tourism activities and robust consumer spending. While headline inflation has moderated, core inflation remains high, reflecting continued underlying price pressures. For the full year of 2023, real gross domestic product (GDP) expanded 3.7%, on the back of sturdy domestic demand growth (Chart 3).

chart 3

The Malaysian economy continued to grow in 2023 on the back of sustained resilience in domestic demand, amid challenging global trade conditions

Source: Department of Statistics Malaysia, the SC’s calculations.

The Domestic Capital Market Continued to Support the Real Economy

The Malaysian capital market remained orderly, while continuing to serve its fundamental role in financing domestic economic activity and mobilising savings effectively. Malaysia’s financial stress broadly eased in 2023 and remained largely below its historical average despite concerns over stress in the US and European banking system in March and rising conflicts in the Middle East in October. The performance of the capital market, however, was mixed, against a backdrop of continued economic uncertainty stemming from escalating geopolitical tensions, a weaker-than-expected economic recovery in China and the movement of the Malaysian ringgit against major currencies in the foreign exchange market.

The size of the capital market increased to RM3.8 trillion in 2023 (2022: RM3.6 trillion), driven by broad-based growth in both total Bursa Malaysia market capitalisation and bonds and sukuk outstanding. Similarly, the fund management industry expanded in 2023, with total assets under management (AUM) rising to a record high of RM975.5 billion (2022: RM906.5 billion), amid improvement in market value and greater asset allocation in developed markets (Chart 4). The unit trust segment¹ remained the largest source of funds, comprising 51.3% of total AUM (2022: 53.9% of total).

However, total funds raised in the capital market moderated to RM127.7 billion in 2023, compared to a high of RM179.4 billion in 2022. In the equity market, primary issuances improved to RM3.6 billion (2022: RM3.5 billion) via 32 initial public offerings (IPOs), while secondary fundraising activities declined to RM5.8 billion (2022: RM22.6 billion) amid lower corporate activities in 2023 as well as higher refinancing demand in the previous year. There was an exceptional surge in refinancing demand in 2022 amid the introduction of various relief programmes aimed at assisting issuers and intermediaries in their post-pandemic recovery. Similarly, in the corporate bonds and sukuk market, total issuances normalised to RM118.3 billion in 2023 (2022: RM153.3 billion). Total issuances, however, remained healthy and in line with the 10-year average of RM111.2 billion per annum.

chart 4

Size of the Malaysian capital market grew in 2023, despite lower fundraising activities, while AUM of the fund management industry registered a new high

Source: Bursa Malaysia; the SC’s calculations.

Importantly, the Malaysian bonds and sukuk market continued to witness issuances in sustainability-related instruments², affirming the capital market’s pivotal role in supporting financing needs towards achieving the nation’s sustainability agenda. Meanwhile, the availability of alternative financing platforms continued to promote financial inclusivity, especially in supporting the funding needs of micro, small and medium enterprises (MSMEs), with total alternative fundraising avenues³ via equity crowdfunding (ECF) and peer-to-peer financing (P2P financing) rising further in 2023.

The domestic equity market was influenced by developments in the domestic economy and global headwinds, with volatility driven by the direction and pace of global monetary policy, ongoing geopolitical conflicts and slower global growth. The overall market capitalisation of the local bourse ended higher at RM1.80 trillion in 2023 (2022: RM1.74 trillion), while that of the FBMKLCI moderated to RM1.01 trillion (2022: RM1.03 trillion). This reflects a positive shift in sentiments favouring medium and small-size companies, as reflected by the favourable performances of FBM Mid 70 and FBM Small Cap. The benchmark FBMKLCI index declined by -2.73% to end the year at 1,454.66 points (2022: -4.60%), while the FBM Mid 70 and FBM Small Cap rose by 12.28% and 9.57% (2022: -8.41% and -5.30%) to 14,612.98 points and 16,353.38 points respectively.

chart 5

Malaysia’s equity market experienced a positive shift in sentiment toward the mid and small cap segment, while local institutional investors turned net buyers of local equities

Note: * FBMKLCI consists of the largest 30 companies ranked by full market capitalisation in the FTSE Bursa Malaysia EMAS Index, while FBM Mid 70 encompasses the next 70 largest companies. FBM Small Cap consists of all constituents of the FTSE Bursa Malaysia EMAS Index that are not constituents of the FTSE Bursa Malaysia Top 100 Index. FBM ACE includes companies listed on the ACE Market.

Source: Bloomberg, Bursa Malaysia, the SC’s calculations.

chart 6

Equity daily trading volume and value increased towards the end of the year amid improved investor sentiments

Note: Daily trading values and volumes are inclusive of off-market transactions. The abnormality on 29 November 2023 was due to RM16 billion in off-market transactions between CelcomDigi related entities.

Source: Bursa Malaysia, the SC’s calculations.

Non-residents turned net sellers of Malaysian equities, amounting a total of -RM2.34 billion in 2023 (2022: +RM4.40 billion). Correspondingly, local institutional investors accumulated a sum of RM3.30 billion in 2023 (2022: -RM6.53 billion), while local retail investors turned net sellers totalling at -RM0.96 billion (2022: +RM2.13 billion) (Chart 5). Despite a net sell position, the participation rate for retail investors improved to an average of 27.45% in 2023 (2022: 25.65%), suggesting that the domestic equity market continued to provide opportunities for a wide range of investors. Meanwhile, the average daily trading volume improved to 3.55 billion units in 2023 (2022: 3.00 billion units), and at a higher average value of RM2.29 billion per day (2022: RM2.18 billion), reflecting favourable investor sentiments, especially towards the end of the year (Chart 6).

In the Malaysian bond market, total bonds and sukuk outstanding grew to RM2.00 trillion (2022: RM1.87 trillion), on the back of continued bond and sukuk fundraising, particularly from the public sector. The overall Malaysian Government Securities (MGS) yield curve shifted downward, tracking the performance of the global bond market. This largely mirrored monetary policy expectations globally, alongside expectations of a broadly stable domestic interest rate environment throughout the year. The spread between corporate bonds and MGS also tightened across most major tenures, reflecting continued demand by domestic institutional investors (Chart 7). Meanwhile, the domestic bond market witnessed the return of foreign investors, with net inflows amounting to RM25.78 billion in 2023 (2022: net outflows of -RM9.78 billion).

Despite the mixed performance of the capital market, 2023 witnessed a marginal improvement in the corporate bond and sukuk segment. While the equity market saw weaker performances, this was not reflected across all segments. The FBM Mid 70 and FBM Small Cap indices registered positive performances while the total IPO fundraising amount continued to trend upwards. In the asset management space, gains from greater allocation in developed markets and the valuation effect from domestic exposure led the rise in AUM.

chart 7

The MGS yield curve shifted downward amid expectations of a stable domestic interest rate environment, while corporate spreads narrowed on resilient investor demand

Note: * Corporate bonds and sukuk rated between AAA and BBB.

Source: Bloomberg; Refinitiv Eikon Datastream; the SC’s calculations.

Unit trust total net asset value (NAV) of RM500.5 billion in 2023 (2022: RM488.5 billion).
Sustainability-related corporate bonds and sukuk issuances was RM8.7 billion in 2023 (2022: RM10.1 billion).
Funds raised via ECF and P2P financing was RM2.2 billion in 2023 (2022: RM1.7 billion).