KUALA LUMPUR: Capital flows into Malaysia in 2025 will be mainly affected by US foreign policy moves, China's growth prospects, global monetary policy settings and geopolitical factors.

UOB Global Economics and Markets Research said this after reporting that foreign investors continued to sell Malaysian debt and equities in November amid uncertainty surrounding the US elections and heightened geopolitical tensions.

Foreign investors sold RM4.2 billion worth of debt and equities in November, compared with RM13.2 billion in October.

This brought the cumulative non-resident portfolio inflows down to RM4.8 billion in the first 11 months of 2024, compared with RM23.2 billion inflows between January and November 2023.

UOB Global Economics and Markets Research in its note today said, the anticipated phased and gradual implementation of tariffs by the Donald Trump administration, starting as early as the second quarter of 2025 (2Q25) and continuing into the first half of 2026 (1H26), is expected to slightly slow global economic growth.

The recovery, however, is likely to be uneven, varying across different sectors and countries affected by these tariffs.

"The rise in tariffs will also weigh on US gross domestic product (GDP) growth and push US inflation higher above the Fed's 2.0 per cent target in 2025 and 2026, prompting the US Fed to end its rate cutting cycle earlier than we had previously anticipated."

"We now project a total 75 basis points (bps) of Fed rate cuts in 2025 and the last cut to be in the third quarter of 2025 (3Q25) (vs previous est: 100bps in 2025 followed by the last cut of 25bps in 1Q26) with a terminal rate of 3.75 per cent by end third quarter of 2025 (3Q25)," UOB said.

UOB said with its revised Fed outlook and higher sensitivity of Asia foreign exchange to US tariffs, it now expects the ringgit, along with most other Asian currencies, to weaken alongside the Chinese yuan in the first three quarters of 2025 before rebounding in 4Q25.

"Trump's tariffs are likely to exacerbate the existing concerns about China's economic slowdown and hence, it is teeing up to be yet another difficult year for both China's economy and the Chinese New Year (CNY) in 2025.

"With that, our updated US dollar to ringgit forecasts are now at 4.53 in 1Q25, 4.60 in 2Q25, 4.65 in 3Q25 and 4.55 in 4Q25," it added.

https://www.nst.com.my/business/economy/2024/12/1145816/capital-flows-malaysia-2025-will-be-shaped-us-policy-and-chinas