KUALA LUMPUR: Malaysia's debt capital market (DCM) is expected to reach US$640 billion by end-2026, supported by increased non-sovereign borrowing, a deep domestic market, a stronger ringgit, continued innovation and digital integration, according to Fitch Ratings.
In a commentary, the rating agency noted that Malaysia's first tokenised sukuk was issued in the first half of 2026, while new regulations governing private debt are expected to create a more enabling environment.
Fitch Global Head of Islamic Finance, Bashar Al Natoor, said foreign investor demand for Malaysian debt has remained resilient despite global volatility, reflecting the ringgit's appreciation, stable yields and the relative depth and development of the local DCM.
"Malaysia is also likely to remain one of the world’s largest sukuk markets, as well as one of the largest DCMs in ASEAN. In addition, all Fitch-rated Malaysian sukuk are investment-grade,” he said.
According to Fitch, Malaysia's DCM exceeded US$610 billion in outstanding value as at end-May 2026, representing a 6.5 per cent year-on-year (y-o-y) increase, with sukuk accounting for about 60 per cent of the total.
"Government debt made up about 58 per cent of DCM outstanding, although the government's aim to reduce federal government debt to 60 per cent of gross domestic product (GDP) or below by 2030 could temper sovereign debt issuance,” it said.
Fitch said sovereign issuance declined by about 25 per cent in the first five months of 2026, while non-sovereign issuance rose 17 per cent y-o-y to account for 68 per cent of total DCM issuance, compared with 58 per cent in the corresponding period of 2025.
The agency also highlighted the growth of environmental, social and governance (ESG) financing, noting that ESG debt outstanding increased 44 per cent y-o-y to US$20 billion, supported by tax incentives.
Fitch also said the yields of Malaysian government debt in 2026 have so far remained stable despite global volatility, while most rated Malaysian sukuk had much higher liquidity than sukuk from most other countries.
"The war in West Asia has had limited direct impact on the DCM as most issuers and investors are domestic,” it said.
On risks, Fitch said lower sovereign borrowing, risk-off sentiment, ringgit and interest rate volatility, commodity price fluctuations, inflationary pressures and the impact of United States tariffs could all weigh on DCM growth. - Bernama
