Malaysia’s Economy Grew 5.3% in Q1 2026

 

Malaysia's economy grew 5.3 per cent in the first quarter from a year earlier. Slight moderation from its pace at the end of 2025. In the final quarter of 2025, gross domestic product had expanded by 6.3 per cent, the fastest pace in three years, driven by higher domestic demand, exports and investments. 

The rise in the January-to-March period was driven by sustained growth in the manufacturing, services and construction sectors, though momentum has slowed compared to the previous quarter. (Based on DOSM statement) 

The mining and quarrying sector declined 1.1 per cent in the quarter due to lower production, particularly of crude oil and natural gas.   Final first quarter figures are expected to be released on May 15.  

Source: https://de.wikipedia.org

The economy expanded 5.2 per cent last year, surpassing expectations as the country posted record values of trade and approved investments. However, Bank Negara Malaysia has warned that supply disruptions and higher fuel prices caused by prolonged conflict in the Middle East would pose risks to its growth and inflation outlook. 

On Apr 9, the World Bank raised Malaysia’s 2026 growth forecast to 4.4 per cent from 4.1 per cent, despite increasing global uncertainties. 

Consumer price rose by 1.7 per cent in March from a year earlier, matching the median forecast by analysts and ticking up from the 1.4 per cent increase the previous month. 

Prices of coal and natural gas, which contributed 92% of Peninsular Malaysia’s energy mix in 2025, have been on the rise following the Middle East conflict as gas supply from the region gets cut off while countries ramp up coal-fired power generation as well. 

Brent, the global benchmark for crude oil, is still above US$100 per barrel, while the most traded Newcastle coal futures have jumped to 2024 highs at US$142 per tonne. Natural gas prices, meanwhile, have retreated from the recent surge driven by the Iran war.

While 80% of natural gas for the power sector comes from domestic supply with price caps, there will be impact from global price increases. The balance 20% is imported, largely from Australia, and subjected to market prices. 

Malaysia’s automatic fuel adjustment mechanism is expected to provide rebates up until July, based on the latest forecast by Tenaga Nasional Bhd. 

Diesel is up, other energy prices up, food items up, transport cost up, wages down! We are in a difficult situation and Madani’s greatest weapon is subsidies. Agreed that it is useful in the short-term, we need more medium to long-term measures: 

-no tax for imports of EVs for 10 years;

-all residential units have a one-time 50% capex subsidy for energy-efficient solar panels.;

-transport vehicles are CNG or hydrogen powered?

-fertilizer plants and food farming are incentivised for self-sufficiency; and

-AI driven technology promoted in agriculture, construction and services. 

References:

Malaysia’s economy grew 5.3% year-on-year in Q1 2026, office advance estimate shows, CNA, 17 April 2026 

Malaysians should brace for gradual rise in electricity prices, says Energy Commission, Adam Aziz, theedgemalaysia.com, 1 April 2026

Is PLUS’ Concession Not Lucrative?

 

The general perception is that PLUS Malaysia Bhd is sitting on a lucrative toll concession. The reality is toll collections are barely enough to cover expenses, including payments to bondholders and maintenance costs. A nagging question is how PLUS, which has been operating highways since 1988, has yet to fully redeem the bonds that were issued to fund the construction of the North-South Expressway.

It should be noted that PLUS’ concession was extended by 20 years following the Pakatan Harapan victory in the 2018 general election. This in turn resulted in the abolition of PLUS’ 18% tariff hike as per its concession agreement. 

PLUS spends RM400 million to RM500 million per year on maintenance. The Malaysian Highway Authority has a very high standard when it comes to the maintenance of expressways. As a result, the cost of maintaining the highways is high. The government, when it decided to keep PLUS with Khazanah Nasional Bhd (51% stake) and the Employees Provident Fund (EPF) (49%), sought to explain that there were several considerations, such as the terrain of the highway when maintenance costs are looked at. 

PLUS has not given decent dividends to its two shareholders over the years and the payment is not hefty because of its financials. A check with the Companies Commission of Malaysia reveals that PLUS suffered three straight years of losses, from FY2021 to FY2023. In FY2023 ended Dec 31, it suffered an after-tax loss of RM148.35 million on the back of RM3.63 billion in revenue. In FY2022, it suffered an after-tax loss of RM247.31 million on RM3.36 billion in revenue. At end-2023, PLUS had total assets of RM28.44 million, while its total liabilities were pegged at RM38.8 billion. The highway concessionaire had accumulated losses of RM10.41 billion.

 

PLUS has total debts of about RM30.2 billion. A significant portion of this, approximately RM11 billion, is guaranteed by the Malaysian government, substantially lowering the company's credit risk. The company has an RM25.2 billion Islamic Medium-Term Notes Programme with a AAAIS(s) rating and a stable outlook from MARC Ratings. This rating reflects a government Letter of Undertaking to cover any cash shortfalls, ensuring debt obligations are met. 

PLUS has five concessions under its belt. The first is Projek Lebuhraya Utara-Selatan Bhd, whose operations comprise the 772km North-South Expressway, New Klang Valley Expressway, Federal Highway Route 2 and the Seremban-Port Dickson Highway. 

Traffic levels saw a post-pandemic surge, rising 7% year-on-year in 2023 and 3.5% in 2024. Future growth is expected to normalize to a historical range of 1% to 1.5% per annum from 2025. As of 2025, the toll fare for a Class 1 vehicle (car) from Kuala Lumpur to Penang is RM45.70, and to Johor Bahru is RM42.30. The current concession agreement does not involve any toll rate hikes for the next 20 years, with a key condition being the maintenance of current rates until the end of the concession period. 

The second concession is Expressway Lingkaran Tengah Sdn Bhd, the operator of the North-South Expressway Central Link. The third concession is Linkedua (M) Bhd, which owns the Malaysia-Singapore Second Link Expressway. The fourth is Konsortium Lebuh Raya Butterworth-Kulim Sdn Bhd, which operates the Butterworth-Kulim Expressway, and the fifth is Penang Bridge Sdn Bhd. 

PLUS has ample liquidity, reflected by cash and cash equivalents of RM3.9 billion as at end-July 2024 as well as strong cash flow generation that averaged RM2.1 billion p.a. over the past four years, provide the toll concessionaire with considerable capacity to meet projected capex and financial obligations over the next 12 months. PLUS expects to remain financially self-sufficient, projecting — under its base case — an average LoU FSCR of 3.18x with a minimum of 2.41x (FY2038) throughout the sukuk tenure, above the covenanted 2.0x. MARC Ratings’ sensitised case assumes zero traffic growth, under which the LoU FSCR could fall below 2.0x from year 2030 (FSCR of 1.8x) and would require the government support to cover the shortfall. However, as historically demonstrated, PLUS has the flexibility to adjust its capex plan as necessary to support its credit metrics. 

There is still a need for a restructuring exercise for PLUS – it has to sell loss-making entities (concessions) to third parties, reduce debt significantly and seek Government support (or cash infusion) to maintain long-term viability. Otherwise, there is no dividend to Khazanah and EPF – which is detrimental to EPF contributors! 

References:

Cover Story: PLUS’ concession not as lucrative as perceived, says UEM Group MD, Jose Barrock, The Edge Malaysia, 19 Dec 2024 

MARC Credit Analysis Report dated 6 November 2024

The AI Finance Revolution will Reshape Banks!

 

Artificial intelligence (AI) is steadily reshaping financial institutions, increasing operational risks and competitive pressures while offering new efficiency and investment opportunities (A view expressed by Fitch Ratings). 

Within the financial sector, Fitch identifies business development companies (“BDCs”) as the most exposed to AI-driven disruption. It notes that software accounts for an estimated 20% of rated BDCs’ portfolios at fair value, and while near-term asset quality deterioration is not expected, accelerating AI disruption in future years will be a challenge.

 

Source: https://commons.wikimedia.org

Wealth managers also face significant risks, as AI-enabled model portfolios and advice threaten traditional fee-based revenue. In contrast, alternative investment managers and insurers stand to benefit from AI-driven developments. 

Fitch notes that some alternative investment managers have software exposure positioned to benefit from lower valuations or infrastructure investments, and that AI adoption may also accelerate privately funded large-scale infrastructure investment often backed by long-term hyperscaler leases. Insurance companies can capitalise on rapid data centre expansion, with the agency stating that appetite and demand for coverage is exceeding insurance industry capacity. However, growth carries risks including heightened catastrophe exposure, coverage uncertainty and new regulatory challenges. Banks experience a mix of operational opportunities and indirect risks. Direct credit exposure to AI-disrupted sectors is limited, and banks benefit from advisory and capital markets activity linked to AI investment. Investment banks could, however, see revenue losses if market sentiment shifts or deals cannot be syndicated at expected terms. 

AI adoption is also raising operational and regulatory concerns across all segments in the financial sector. Fitch describes it as “a double-edged sword”, with benefits accompanied by greater cyber threats, governance challenges, and potential model errors. In insurance, AI-driven underwriting and claims processing could yield biased or discriminatory outcomes, and the report notes that “policy language was written prior to the introduction of generative AI, thereby increasing the risk of coverage disputes”. 

Large banks invest heavily in proprietary capabilities, regional banks combine in-house and third-party solutions, and community banks largely rely on core system providers embedding AI features. For smaller institutions, AI may enhance efficiency, while for larger players, it can strengthen strategic decision-making. Despite rising AI use, Fitch stresses that technology is not a near-term driver of credit ratings.

Cost savings are unlikely to translate directly into higher profitability, as intense competition and rising servicing costs absorb potential gains. It adds that this would be in line with prior technological advances, which did not result in structural improvements in efficiency ratios. Rather, AI investments will allow an institution to scale its business and remain competitive. 

With AI, the financial industry is certainly in transition. Investors may need to reassess portfolio exposure across sectors, weighing potential disruption against emerging growth opportunities. Allocations could shift toward firms best positioned to leverage AI for efficiency, innovation and competitive advantage. More work may need to be done on AI that will drive-down employment, increase productivity, reduce risks and improve profits. 

Reference:

The AI finance revolution, The Star, 4 April 2026

Is the Capital Market Masterplan 2026 – 2030 (“CMP”) Holistic?

 

The long-awaited Capital Market Masterplan 2026 to 2030 (CMP) was released with key details as to how the regulators see the Malaysian capital market developing over the next five years. Governance took centre stage in the new CMP. Malaysia hopes to be regional leader in responsible investment, focusing on the environment, social, and governance framework. In addition, Malaysia will continue to play a leading role in promoting syariah-compliant and socially responsible investments. 

CMP has outlined an ambitious plan, with the capital market expected to hit between RM5.8 trillion and RM6.3 trillion by 2030, from just RM4.3 trillion at the end-2025. Having recorded a compounded annual growth rate (CAGR) of 5.1% between 2021 and 2025, led by a strong 6.6% growth in the value of total fixed income securities outstanding, strategies outlined in the new CMP are expected to see the capital market growing at a CAGR of between 6.1% and 7.9% over the next five years, which is indeed a tall order. 

Source: https://ms.wikipedia.org

Based on input from the industry and various stakeholders, CMP can be said to be a holistic blueprint that is razor-focused on capitalising on Malaysia’s strengths in driving Islamic capital market, sustainability-related investments, and modern investment themes or tools. 

The CMP recognises global trends, evolving demographic changes, and economic transformation. The key in the CMP is how the capital market can be a critical enabler that will transform Malaysia to be more prosperous in the identifiable high-growth areas such as advanced manufacturing, green technology, digital economy, and others. 

Based on the current assessment, the retail market participation is at just 25% and is not reflective of an inclusive society, where the level of market participation should be higher. According to the Securities Commission (SC), 60% of non-investors are below the age of 40, and this reflects the lack of financial market awareness. Lack of trust has been cited as the main reason, as investors fear being scammed. Indeed, there is a greater need to raise the level of awareness and education when it comes to financial literacy. 

The current generation has different life objectives when it comes to investments, as well as the manner and type of investments they are focusing on. The lack of market participation and trust in the capital market is also evident by the large amount of retail deposits in the banking system, with modest returns in the form of low-yielding assets. Under the CMP, the SC is looking to reshape how individuals are engaged, incentivised, and supported throughout their financial journey. This requires early engagement with individuals in their working lives to drive the level of participation, followed by efforts to improve long-term retention with a view to helping more Malaysians achieve financial resilience and retirement sufficiency. 

The key is not only engaging individuals at their respective workplaces but also making financial literacy a part of primary and secondary education, similar to how some subjects are taught in schools. 

One of the key incentives in CMP is the MY Value Up programme that could help raise listed companies’ profiles in terms of key financial matrices, which, among others, include total shareholder returns and return on invested capital. The CMP also calls for the publishing of annual key performance indicator (KPI) scores. 

The objective here is to address mispricing for undervalued companies, restoring investors’ confidence via structured turnaround plans and improving liquidity for low-velocity listed companies, which will generate greater investor participation. 

The SC also suggested looking at enhancing its statutory powers to direct and oversee exits.

In this regard, the focus should be on improving the current Malaysian Code on Takeovers and Mergers, where independent advisers have taken a very narrow view, whereby an offer is deemed reasonable although it may not be fair. An offer cannot be reasonable if it is not fair. 

Another is to increase participants and/or players as intermediaries in the marketplace. For example, over 50 years, it is the merchant or investment banks that have monopolised submissions to SC. It is time for qualified Corporate Finance Advisors to act in a similar capacity. In the end, quality will determine success of approval. 

Overall, the CMP is a holistic blueprint that will take the Malaysian capital market to the next level and anchor the role it plays in nation-building, as well as promoting growth, inclusivity, and sustainability. 

Reference:

Execution is key to CMP, Pankaj C. Kumar, The Star, 4 Apr 2026

The Rule of 72

 

The Rule of 72 is a quick, mental shorthand used to estimate how long it will take for an investment to double in value, or for the purchasing power of money to halve due to inflation. (I have done this before, but it is a good reminder)

 

The Formula

To find the number of years required to double your money, divide 72 by the annual rate of return (using the whole number, not the decimal): 

 

Examples of Doubling Time

Based on the Rule of 72, here is how long it takes for an investment to double at different rates of return: 

 

·        3% Return: 24 years

·        6% Return: 12 years

·        9% Return: 8 years

·        12% Return: 6 years 

 

Practical Applications

·        Investment Planning: Quickly compare two different assets; for example, a stock portfolio at 9% will double in 8 years, while a bond at 4% takes 18 years.

·        Reverse Calculation: Determine the rate needed to double your money in a specific timeframe by dividing 72 by the number of years. For instance, to double your money in 10 years, you need a 7.2% return (72 / 10)

·        Inflation Impact: Estimate how fast your purchasing power will be cut in half. If inflation is 6%, your money's value will halve in approximately 12 years (72/6)

Accuracy and Limitations

·        Ideal Range: It is most accurate for interest rates between 5% and 10%.

·        Compounding: The rule assumes compound interest rather than simple interest.

·        Alternative Rules:

o   Rule of 69.3: More precise for continuously compounded interest.

o   Rule of 70: Often preferred for lower interest rates or for calculating population growth.

·        Exclusions: It does not account for investment fees, taxes, or market volatility, all of which can significantly delay actual doubling times

The Middle East War Shock!

 

A resilient world economy is being tested again by the war in the Middle East. The conflict has caused considerable hardship around the globe. This requires understanding the nature of the shock, the channels through which it affects the economy, the size of the impact, and the policies that can mitigate it. (This is an extract of a speech by the IMF Managing Director in Washington DC).

 

So what hit us? A supply shock that is large, global, and asymmetric:

 

·             It is large because the world’s daily oil flow cut by some 13 percent, and its LNG flow by some 20 percent;

·             It is global because all of us are now paying more for energy and with supply chains disrupted across the world;

·             And it is asymmetric because its impact depends on proximity to the conflict.

 

As always, a negative supply shock pushes prices up. As a point of reference, Brent jumped from $72 per barrel on the eve of hostilities to a peak of $120.

 

The supply interruptions have had—and will for some time continue to have—ripple effects, such as:

 

·             Oil refinery disruptions given the need to maintain minimum flow rates, with warning lights flashing red in many far-flung places;

 

·             Shortages of refined products including diesel and jet fuel, which have disrupted transportation, trade, and tourism in a world more interconnected than ever;

 

·         Food insecurity for another 45 million people given the transport issues—taking the total number of people in hunger to over 360 million—with the problem potentially worsening over time because of higher fertilizer prices;

·         And supply chain disruptions given industrial dependencies such as on sulfur, helium for silicon chipmaking and MRI imaging, and naphtha for plastics.

 

The second question is: how can this shock play out? Through three main channels:

 

·         First: the price impact and supply shortages. Higher prices for key inputs feed into many consumer goods, lifting inflation. This, coupled with shortages, reduces demand by brute force.

·         Second channel: inflation expectations. These can break anchor and ignite a costly inflation process.

·        Third channel: financial conditions.

 

We have been here before in the 1970s and earlier this decade.

How large is the growth impact? What we do know is that growth will be slower—even if the new peace is durable. And we also know there are significant variations across the world. Countries able to export oil and gas undisturbed are the least affected. In contrast, countries directly disrupted by the war—including oil and gas exporters who suffered the blockade—and countries relying on imported oil and gas, still bear the brunt of the impact.

 

How bad this impact will be will depend, in no small measure, on how much policy space countries have, including oil and gas reserves, given the five-week gap we have seen in tanker traffic from the Gulf.

 

The answer very much depends on whether the ceasefire holds and leads to lasting peace and how much damage the war leaves in its wake.

 

For Malaysia, the impact maybe subdued because we are net exporter of oil and gas. But inflation will remain elevated because non-subsidised fuel like diesel will increase transport costs which will then be passed onto consumers. Food imports may cost higher but contained if ringgit holds against the dollar. Supply chain disruptions may occur for those that need oil (from the Middle East) for their output of plastics, silicon chip making or MRI imaging.

 

The Government has a task force to monitor the impact and propose measures but it will be good if they do a weekly communication on pump price changes, subsidies provided (or increased) and how inflationary pressures are being addressed.

 

Reference:

Cushioning the Middle East War Shock (speech by IMF Managing Director Kristalina Georgieva at the 2025 Spring Meetings in Washington, DC).

The Just War Theory and the Iran-US Conflict?

Just war theory is a doctrine of military ethics, rooted in the work of St. Augustine and Thomas Aquinas, that provides a framework to determine if a war is morally justifiable. It sets strict conditions—jus ad bellum (just reasons for war) and jus in bello (just conduct during war)—to limit destruction and prevent the unnecessary loss of life.

 

· Jus ad Bellum (Going to War):

o Just Cause: War must defend against an attack or prevent significant harm.

o Right Authority: War must be declared by a legitimate, sovereign government.

o Right Intention: The goal must be to secure a just peace, not vengeance or conquest.

o Last Resort: All diplomatic and peaceful options must be exhausted.

o Reasonable Hope: Success must be realistically achievable to prevent wasteful bloodshed.

o Proportionality: The good achieved by the war must outweigh the destruction it causes.

 

Source: https://en.wikipedia.org

 

· Jus in Bello (Conduct in War):

o Discrimination/Non-combatant Immunity: Soldiers must avoid targeting civilians and minimize collateral damage.

o Proportionality: The force used should be proportionate to the objective and not cause excessive harm.

 

· Jus post Bellum (Justice After War): Covers the requirements for a just, lasting peace after the conflict, including the fair treatment of the defeated party.

The theory, which blends classical and theological traditions, aims to prevent war from becoming a "blank check for violence" and to guide decision-making in international conflicts. It serves as a moral, and often legal, framework—influencing international law—that tries to restrain war and distinguish it from murder or genocide.

 

Does Israel or the U.S. follow the above? No! J.D. Vance (a newborn Catholic) and Donald Trump think otherwise. Ignorance is bliss. They also wage war against the Pope. And Pope Leo XIV is a member of the Order of St. Augustine – the first from the Order to be elected Pope. He has degrees in Mathematics and Philosophy. And subsequently completed a doctorate.

 

Both Vance and Trump are out of depth, while Pete Hegseth conducts himself like a modern day crusader (righteous violence). Recently, he quoted from the movie "Pulp Fiction" and thought it was from the Bible. Fabricated from a real biblical verse!

 

Cardinal Robert McElroy of Washington DC said the U.S. and Israeli attack on Iran had failed the just war criteria. For over 1,000 years the Catholic church has taught just-war theory. A nation can only take up the sword in self-defence and once all peace efforts have failed.

 

The U.S. administration has not made a coherent and acceptable case for the just war theory. It was the same in Iraq, Libya, Syria, Afghanistan, Vietnam and many more! Stop the war now!