PETALING JAYA: The US Federal Reserve’s (Fed) 25-basis-point (bps) rate cut – its first in nine months – sets a more supportive backdrop for global risk assets and could encourage stronger inflows into Malaysia.
SPI Asset Management managing partner Stephen Innes said the Fed’s move signalled a boost to global liquidity, which could draw investors back into emerging markets.
“The Fed’s latest cut is essentially a global liquidity signal, and while it doesn’t alter Malaysia’s fundamentals directly, it does set a more supportive backdrop for risk assets,” he told StarBiz.
“Bursa Malaysia could benefit from stronger foreign inflows as global investors rotate into emerging markets with improving carry and valuation appeal, particularly in export and commodity-linked sectors.”
Despite the Fed’s dovish shift, local equities ended lower yesterday.
The FBM KLCI, which tracks the top-30 companies on Bursa Malaysia based on market capitalisation, closed down almost 13 points at 1,598.93 after opening at a high of 1,606.86 and slipping to a low of 1,597.41.
Hong Leong Investment Bank (HLIB) Research, however, said it remained “constructive” on the benchmark, eyeing 1,625 to 1,640 points amid expectations of a gradual Fed easing cycle, alongside a revival in foreign net inflows.
It noted that foreign investors have turned net buyers in September month-to-date with inflows of RM385mil, compared with outflows of RM3.43bil in August.
“In the wake of renewed foreign buying interest, we maintain a constructive outlook on the FBM KLCI, anticipating a retest of the 1,615 to 1,640 technical hurdles in September following a brief consolidation,” it noted in a report yesterday.
“We view any pullback as a tactical accumulation opportunity, as investors position for the remainder of 2025.”
HLIB Research added that resilient local flows and “undemanding” valuations have kept the market steady.
Despite RM16.1bil in year-to-date foreign outflows, the research firm said the FBM KLCI has held firm, supported by local institutional inflows of RM14.36bil and retail purchases of RM1.75bil.
“A stronger ringgit (up 6.78% year-to-date), an undemanding 2026 price-to-earnings ratio of 14 times (versus the five-year mean of 17.2 times), an attractive 2026 dividend yield of 4.2% and record-low foreign shareholding of 18.8% in August further enhance the index’s risk-reward profile,” it noted.
For the broader economy, Innes noted the key channel was through capital flows.
“A Fed easing cycle can encourage more inflows chasing a stronger ringgit, which in turn improves market confidence and provides some insulation against external volatility,” he explained.
Economist Geoffrey Williams said that while the Fed’s rate cuts would normally lift US growth and global trade, the recent tariff increases may limit the near-term impact.
“Given the current tariff issues and the volatility of trade, this might not show up immediately in gross domestic product (GDP) in Malaysia, but it does improve prospects slightly for next year,” he said.
He added that lower US rates could also raise the appeal of American equities, which may divert some funds away from Bursa Malaysia.
On the local monetary policy, Williams believes the current policy stance is sufficient.
“The current overnight policy rate (OPR) position by Bank Negara Malaysia (BNM) is sound in my view and the earlier cut anticipated easing of rates by the Fed. There is no need for further cuts in the OPR,” he said.
“Inflation is low, growth is steady, financial markets are sound, the ringgit is strong at the moment and foreign reserves are also strong. So policy is well set.”
To note, BNM’s Monetary Policy Committee (MPC) kept the OPR unchanged at 2.75% at its most recent meeting on Sept 4, after cutting it by 25 bps on July 9 in its first reduction in five years.
The MPC is scheduled to hold its sixth and final meeting of the year on Nov 6.
Innes, however, said BNM’s policy stance is more delicate, as it must balance domestic conditions with regional competitiveness and capital flows.
“Having cut in July and holding it steady in September, they are cautious not to appear as simply shadowing the Fed. Still, if Fed chair Jerome Powell’s easing path accelerates, the pressure will build for BNM to keep regional alignment in order to support competitiveness and capital flow stability,” he said.
“Domestic inflation is contained and growth remains reasonably resilient, which argues against urgency. November’s decision will depend heavily on export performance and labour data.”
Innes added that another cut is possible if external risks worsen.
“But the bias is still toward gradual, measured adjustments rather than aggressive easing,” he said.
The domestic economy grew 4.4% in the second quarter of 2025, matching the pace seen in the first quarter.
For the full year, BNM has forecast GDP growth to lie between 4% and 4.8%.
Inflation remains subdued, rising 1.2% in July from a year earlier after a 1.1% increase in June.
The central bank expects headline inflation to average between 1.5% and 2.3% this year.
Looking ahead, Apex Securities Research said the Fed’s latest cut “likely signals the start of a new easing cycle” as it seeks to balance labour market weakness with lingering inflation risks.
“We now expect a further 50 basis points of cuts by year-end, with 10-year US Treasury yields maintaining a mild downward bias and Malaysian Government Securities yield broadly stable, anchoring the dollar / ringgit pair near 4.20,” it said.
Still, Apex Securities Research cautioned that markets may have overshot in pricing the extent of Fed easing.
“A reversal of those expectations could unwind part of the Treasury rally and pressure the ringgit closer towards our baseline expectation of 4.30,” it said.
As of 5 pm yesterday, the dollar was trading at 4.198 against the ringgit.
The Fed’s dot plot, which reflects its officials’ year-end federal funds rate forecasts, showed a median projection of 3.6% for end-2025.
This implies about two more 25-basis-point cuts or one 50-basis-point cut from the current 4.00%–4.25% range.
The Federal Open Market Committee, the US central bank’s main policy-setting body, will hold its final two meetings of the year on Oct 28–29 and Dec 9–10.
