Light at the End of the Tunnel — But No Victory Lap for Madani Yet
For the first time in years, Malaysia feels investable again.
The ringgit has strengthened, foreign capital is returning—albeit cautiously—Bursa Malaysia has clawed its way past 1,700 points, and macroeconomic panic has given way to guarded optimism.
After the political chaos of 2018–2022 and the economic trauma of Covid-19, this alone is no small achievement.
Yet it would be premature—perhaps even dangerous—for the Madani government to engage in chest-pounding. Markets may be calmer, but they are not yet convinced.
What we are witnessing is not a ringing endorsement of Anwar Ibrahim’s reform agenda, but a conditional reprieve: confidence in stability, not yet belief in transformation.
There is light at the end of the tunnel. But the tunnel is long, narrow, and politically treacherous.
Wong Chun Wai’s The Star Sunday column, “Anwar’s fast-track reform push starts early,” captures the political tension well.
Within PKR, patience is running thin. Idealists who backed Anwar for decades expected faster, deeper reform—particularly in governance, institutional independence, and economic justice.
Anwar, however, governs with a razor-thin coalition and must constantly weigh reform ambition against political survivability. Reform is not just an economic exercise; it is a political calculation. Push too slowly, and credibility erodes. Push too fast, and the coalition fractures.
The government understands this. The problem is that public confidence has begun to wobble—not because reforms are absent, but because they feel incremental, technocratic, and slow.
Markets can tolerate gradualism; voters are less forgiving.
The End of Easy Money: Petronas, GLCs, and Federal Constraints
One structural reality looms over everything: Petronas is no longer the cow to be milked endlessly. The days when oil and gas revenues could plug fiscal holes are over.
Oil prices are lower, gas politics more complex, and Sarawak’s autonomy agenda has fundamentally altered federal control over natural gas. Sarawak is tightening its grip, and Sabah is pressing its constitutional claim to a 40% tax rebate.
These are not minor fiscal footnotes—they strike at the core of federal revenue sustainability.
At the same time, many GLCs and government-linked funds are no longer as plush as assumed. Returns are uneven, balance sheets stretched, and public expectations unrealistically high. The federal government is being forced—perhaps for the first time—to confront hard budget constraints.
This explains why tax collection reforms, though deeply unpopular, are unavoidable. Broadening the tax base is not ideological—it is arithmetic.
External Pressures: Trade, Currency, and the Global Cycle
Malaysia’s external position is also under strain.
The current account surplus is narrowing, trade flows are being disrupted, and the return of Trump-style tariffs threatens export-oriented economies.
A strengthening ringgit—driven largely by a weakening US dollar rather than domestic exuberance—adds another layer of complexity. While currency strength restores confidence, it also hurts exporters and encourages imports, tightening margins in an already competitive global environment.
Palm oil prices are down. Oil prices are down. These trends reduce fiscal buffers and export receipts at precisely the moment Malaysia needs them most.
Yet the ringgit’s rise should not be dismissed. It signals something important: Malaysia is no longer seen as fragile.
The fall of the US dollar—amid ballooning US debt (USD38 trillion, over 120% of GDP), geopolitical risk, and US-China rivalry—has pushed global capital to rebalance.
Malaysia benefits not because it is perfect, but because it is predictable.
Bonds Over Stocks: What Investors Are Really Saying
Foreign capital has returned—but largely to the bond market, not equities.
This distinction is critical. Bond investors are voting on fiscal discipline, policy coherence, and currency stability. Equity investors vote on growth, productivity, governance, and future earnings.
Malaysia is winning the first vote, not the second yet. Bursa Malaysia remains in a structural funk.
The largest companies are asset-heavy, domestically focused, and entrenched behind high non-tariff barriers. Ten of thirteen sectors are in the red.
Foreign funds continue to underweight Malaysian equities, preferring bonds or waiting for portfolio rebalancing opportunities rather than making conviction bets.
Contrast this with the US market: soaring on AI optimism, easing trade tensions, upbeat earnings, and expectations of interest rate cuts—despite historically lofty valuations.
Capital follows narrative as much as numbers, and Malaysia’s equity story remains underdeveloped.
Structural Reform: Announcements vs Endurance
Anwar understands this. The January 5 announcements signalled something important: a willingness to institute reforms on his own terms, not merely react to crises.
Subsidy rationalisation, governance reform, and institutional independence are no longer abstract goals—they are active policy directions.
Crucially, Anwar appears willing to spend political capital and take risks. That, in itself, differentiates him from many predecessors.
But the real test is sustainability. Can reforms survive backlash? Can they move beyond announcements into enforcement? Can institutions operate independently when decisions become politically inconvenient?
Markets are watching less for new speeches and more for follow-through.
Politics Returns: The Election Clock Is Ticking
All of this unfolds under the shadow of politics. As the election cycle edges toward December 2029, pressures will intensify.
Rafizi Ramli’s critics already warn against overreach, fiscal tightening, and reform fatigue. Populist temptations will grow as hardship becomes more visible before benefits materialise.
The Madani government now faces its true test of power: whether it can hold course when reform becomes costly, unpopular, and politically dangerous.
Why 2026 Still Matters
Despite all this, there is a credible argument—made recently by The Edge Weekly—that Malaysia is an “alpha market hiding in plain sight.”
Political stability has returned. Domestic demand is resilient. Growth, while modest, is steady (around 4.8% projected for 2025). Fiscal management is more disciplined. Structural reforms have begun. The ringgit has stabilised.
This is not a boom story—but it is a foundation story.
Investors should not expect miracles. But they should recognise that Malaysia has moved from dysfunction to direction. That alone changes the investment calculus.
Cautious Optimism, Earned Not Declared
There is light at the end of the tunnel—for the economy and for Anwar Ibrahim politically. But it is borrowed light, contingent on execution, endurance, and political courage.
Madani policies have contributed—partially, not decisively—to the current calm. Global factors matter. Portfolio rebalancing matters. But credibility, once lost, is hard to regain—and Malaysia has begun to regain it.
The danger now is complacency.
Reform is not a moment. It is a grind. And the market, like history, has little patience for premature celebration.
If Anwar can sustain reform beyond announcements, absorb political pain, and convert bond confidence into equity conviction, then Malaysia’s best days may indeed lie ahead—not because of rhetoric, but because of resolve.
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