What impact did global rate hikes have on Malaysian markets?

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Global Rate Hikes Led to Increased Volatility in Malaysian Financial Markets

Global monetary tightening in the second half of 2022 significantly impacted Malaysian financial markets, leading to heightened volatility across foreign exchange, bond, and money markets. Despite this increased fluctuation, market conditions remained orderly, facilitating the smooth flow of transactions. The financial market stress index (FMSI) rose to levels not seen since mid-2020, though it stayed below the peak experienced at the pandemic's outset in March 2020.
Ringgit Fluctuations Driven by External Factors

The Malaysian ringgit's performance was primarily influenced by external economic conditions and the evolving global growth and inflation outlook. In early November 2022, the ringgit reached an all-time closing low of 4.7480 against the US dollar. This depreciation occurred as the US dollar strengthened to a two-decade high, a consequence of aggressive monetary policy tightening by the US Federal Reserve. However, the ringgit later strengthened towards the year's end, largely due to indications that the US Federal Reserve might moderate its pace of interest rate increases. These adjustments in the ringgit were orderly, supported by consistent liquidity within the onshore foreign exchange market.
Corporate Bond Issuances Saw Sharp Increase

Despite global financial market volatility, the issuance of corporate bonds in Malaysia experienced a substantial rise in the latter half of 2022. Between August 2022 and January 2023, gross corporate bond issuances amounted to RM94.7 billion. This represents a significant increase compared to the RM48.8 billion recorded in the period from August 2019 to January 2020, before the pandemic significantly altered global economic conditions. A major issuance by a toll road operator in December, valued at RM25.2 billion, contributed notably to this surge.
Equity Market Performance Supported by Easing Conditions

The domestic equity market received support in the fourth quarter of 2022, driven by an easing of global financial conditions, robust domestic economic activity, and positive investor sentiment. An orderly political transition following the 15th General Election also contributed to this favourable environment. For the entirety of 2022, non-residents were net buyers in the Malaysian equity market, with a net inflow of RM4.4 billion. This marked a reversal from the four consecutive years of net outflows observed since 2018.
Banking System Liquidity Remained Stable

Liquidity conditions within the Malaysian banking system were largely unaffected by the withdrawal of regulatory flexibilities that had been in place during the pandemic. Furthermore, recent stresses observed in the banking sectors of the United States and Europe did not significantly disrupt domestic liquidity. This stability in the banking system supported the smooth intermediation of two-way flows in the bond and equity markets, thereby aiding businesses in their capital market fundraising efforts.

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What impact did global rate hikes have on Malaysian markets?

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