KUALA LUMPUR, March 31 — Malaysia’s strong economic fundamentals and ongoing domestic structural reforms are expected to provide support to domestic market sentiment amid the highly uncertain global environment.

Bank Negara Malaysia (BNM), in its Financial Stability Review for the second half of 2025 (2H 2025), said the well-capitalised banking sector, deep and liquid financial markets, and a diversified investor base are expected to continue supporting orderly market functioning and resilience.

Nevertheless, the central bank said Malaysia’s financial markets will continue to operate in a highly uncertain global environment, shaped by ongoing developments and uncertainties surrounding geopolitical tensions and trade tariffs.

“In particular, the recent conflict in West Asia could lead to greater volatility in energy markets and commodity prices. These risks, together with developments in the United States trade policies, could weigh on supply chains and add to global inflationary pressures, while also posing headwinds to global growth,” it said.

BNM said this may complicate the monetary policy outlook in major economies, with any abrupt shifts in market expectations regarding the future path of US monetary policy potentially prompting episodes of heightened risk aversion across financial markets.

“Reflecting these developments, domestic financial market stress has increased, with the Financial Market Stress Index (FMSI) rising to 11 per cent as of March 9, 2026,” it further said.

Taken together, the central bank said these dynamics point to a challenging operating environment that could heighten global market volatility and spill over into domestic financial markets.

Between October 2025 and January 2026, BNM said the domestic equity market recorded steady gains, with the benchmark FBM KLCI rising by eight per cent, supported by improved investor sentiment following the conclusion of Malaysia’s trade negotiations and non-tariff measures with the US in October 2025.

As for the ringgit, it appreciated by 6.6 per cent against the US dollar to 3.9453 between October 2025 and January 2026, its strongest level since May 2018.

“Investor sentiment was positive, with market participants attributing the ringgit’s performance to ongoing domestic reforms, the conclusion of trade negotiations with the US and supportive external conditions,” it said.

BNM also said that longer‑term interbank rates have stabilised since January 2026, indicating that funding conditions have normalised heading into the period ahead.

“Market liquidity remained healthy, supported by sustained demand for government bonds in the primary market, as indicated by the relatively healthy average bid-to-cover ratio of 2.2 times between October 2025 and January 2026,” it added. — Bernama