Influence of Geopolitical Risks on Malaysia’s Capital Market in 2025

The Securities Commission Malaysia anticipates that the capital market in 2025 will be shaped by risks such as financial uncertainties and escalating geopolitical conflicts. These factors threaten global supply chains and may impact trade policies. Despite recent resilience, market concentration poses risks to liquidity and attractiveness for investors.

The Securities Commission Malaysia (SC) has indicated that the capital market in Malaysia will continue to face significant risks in 2025, particularly stemming from financial uncertainties. Geopolitical conflicts are deeply testing the resilience of global businesses, with ongoing disruptions to major transportation routes threatening global supply chains, commodities, and food security. The SC emphasized these issues in its Capital Market Stability Review 2024, released on March 20.

The SC also highlighted that a new United States administration may exacerbate foreign policy risks for international businesses. Tariffs, investment restrictions, sanctions, and changing industrial policies are expected to intensify as countries compete for strategic supply chains and key sectors. This environment of geopolitical tensions coupled with financial volatility will affect global trade and investment flows.

Furthermore, the SC warned that weakening economic growth in China, along with potential trade restrictions from the US, could have negative repercussions on global trade and commodity markets. It noted a diverging outlook for policy rates in developed markets, indicating that rates are likely to remain elevated for an extended period despite differences between the US and Europe.

The geopolitical landscape remains precarious, as escalated conflicts could lead to economic fragmentation that adversely impacts local capital markets. Increased instability may prompt global investors to seek safe-haven assets, contributing to market volatility. The SC anticipates more frequent market fluctuations driven by sentiment, given the interconnected nature of global markets.

Despite these challenges, the Malaysian equity market demonstrated resilience throughout 2024, weathering local and global events such as market downturns and changes in US interest rate policy. However, the SC noted that trading remains heavily concentrated among local institutional investors, reducing investor diversity. This concentration has implications for market behavior, as similar trading patterns can lead to overcrowded trades and overreactions.

The concentration of market capitalization in the FBM KLCI counters poses long-term risks to liquidity and depth. This environment diminishes the attractiveness of the Malaysian equity market for value investors and affects its capability for inclusion in global indices, according to the SC’s assessment.

In conclusion, the Securities Commission Malaysia outlines several pressing risks that will influence the capital market in 2025. Geopolitical tensions, economic fluctuations, and investor concentration are vital factors leading to increased market volatility. While the Malaysian equity market has shown resilience, ongoing uncertainties necessitate careful monitoring to maintain stability and attractiveness to investors.

Original Source: www.bernama.com