Potential Fed and BoJ Rate Hikes Could Test Malaysian Market Liquidity

Market observers say that if the Federal Reserve raises its policy rate and the Bank of Japan follows suit, Malaysia could see short-term pressure from hot-money outflows, a softer ringgit and higher bond yields. MBSB Research’s Imran Yassin notes that tighter US dollar funding and more expensive yen borrowing would likely trigger a reduction in leverage and a pullback from Asian risk assets, especially yen-funded carry trades.

Sectors most vulnerable are REITs, property and high-valuation technology stocks, which are sensitive to rising yields and discount rates. Conversely, plantations, healthcare, consumer staples, exporters with dollar revenue and well-capitalised banks may prove more resilient, aided by strong domestic growth and AI-linked export demand. Bank Muamalat Malaysia’s chief economist Dr Mohd Afzanizam Abdul Rashid adds that markets have largely priced in the Fed move, so only a surprising hawkish stance would spark a sharper sell-off. Global bond strategist Stephen Innes cautions that longer-dated Malaysian government bonds could be more exposed than equities if US Treasury yields climb further.