The Anwar Ibrahim government sold Islamic securities, or sukuk, in two parts to help fund projects, including infrastructure, as well as refinance existing obligations. It priced a USD 850 million note due in April 2032 to yield 4.612% and sold a USD 650 million tranche maturing in July 2036 to yield 4.949%.

As per the Malaysia government, the bonds were 4.7 times oversubscribed, with the strong demand allowing the Southeast Asian nation to tighten final pricing by 30 basis points from the initial price, recording the tightest ever spreads for the country’s global sukuk offerings.

“The strong oversubscription with the tightest ever spread reflects global investors’ continued confidence in Malaysia’s economic prospects and policy credibility,” Second Finance Minister Amir Hamzah Azizan said on July 24.

While Malaysia’s economic growth has surpassed expectations in recent quarters due to tailwinds like robust domestic demand, a surge in semiconductor-related investments, and artificial intelligence (AI) and electronics exports, the fuel subsidy bill will test the nation’s resilience amid the ongoing Iran war.

On July 15, Deputy Finance Minister Liew Chin Tong said that Malaysia’s fuel subsidy expenditure may reach nearly RM40 billion in 2026 if the current geopolitical volatility, along with the oil market conditions, remains.

As per Liew, the Ibrahim government spent almost RM800 million a month on RON95 (grade of petrol with a Research Octane Number of 95) and diesel subsidies in January and February 2026 before the amount surged to around RM5 billion monthly in March and April following the escalation in the Gulf region.

While the subsidy costs moderated to around RM4 billion in May and June as oil prices eased, the administration now expects petroleum product subsidies to total close to RM40 billion for the remainder of the year, depending on the geopolitical developments.

GDP rose 5.8% in the three months through June from a year earlier, beating analysts’ expectations. Apart from the Iran war, the nation will face uncertainties on the trade front as well, with the Donald Trump administration looking to collect new levies from most major trading partners while rebuilding Washington’s tariff warfare mechanisms.

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As per Bashar Al Natoor, managing director and global head of Islamic Finance at Fitch Ratings, the Southeast Asian country has remained a unique “local story” that has successfully buffered itself against external shocks, including geopolitical volatility.

“During the crisis, the Gulf Cooperation Council (GCC) debt markets saw minimal dollar issuances, rising yields, and tighter liquidity, while Malaysia’s market remained resilient with steady foreign investor participation, growing non-sovereign issuance, and innovations like tokenized sukuk, supported by strong ringgit stability and regulatory development. It’s impacted by its own local story,” the senior official told the StarBiz.

Al Natoor expects a resilient debt capital market that will continue to expand as envisioned in Malaysia’s local Capital Market Master Plan (2026 to 2030). Fitch also predicts the nation’s debt capital market (DCM) to expand modestly to reach USD 640 billion outstanding by the 2026-end.

“This growth is anchored by a deep domestic investor base, stable yields, and the ringgit’s performance as one of Asia’s most resilient currencies. Unlike the GCC, where US dollar issuances were scarce during the height of the conflict, activity in the Malaysian market continued almost as normal,” the ratings agency remarked.

“A key trend for the remainder of 2026 is the strategic shift from sovereign to non-sovereign debt. While the Malaysian government is engaging in fiscal consolidation, aiming to reduce federal debt to 60% of GDP by 2030, the private sector is picking up the mantle as well. Non-sovereign issuance rose by 17% year-on-year in the first five months of 2026, accounting for 68% of total DCM activity,” said Bashar, terming the transition a sign of market maturity.

“We expect more non-sovereign to go and issue into the market, and I think that stands out,” he stated, noting that corporate and bank issuers are increasingly defining the market’s trajectory.

“Banks remain the largest non-sovereign contributors, often using sukuk for refinancing and opportunistic funding. The local Islamic banking sector, meanwhile, continues to outpace conventional growth. Islamic banking assets grew by 7% to reach USD 312 billion by the end of 2025, while conventional assets grew by only 4%,” Fitch said further.

Talking about the growth of the Islamic financial ecosystem in Malaysia, the industry now represents 44% of the Southeast Asian country’s total system loans, nearing the Anwar Ibrahim government’s 50% target.

Bashar attributed this success to the most “evolved ecosystem” in the world, which integrates issuers, investors, takaful (Islamic insurance), haj funds, and pension funds like the Employees Provident Fund (EPF) into a cohesive syariah-compliant framework.

“Malaysia has cemented its position as the world’s largest environmental, social, and governance (ESG) sukuk market, holding a 31.6% share of global outstanding ESG sukuk as of mid-2026. ESG-linked debt in the country rose by 44% to USD 20 billion, heavily supported by government tax incentives. Sukuk remains the dominant vehicle for these sustainable investments, accounting for 94% of total ESG debt issuance,” Fitch noted.

Malaysia is also taking a lead role in terms of innovating in the industry. The Southeast Asian nation saw its first tokenized sukuk issuance in the first half of FY 2026. New regulations for private debt will likely further enable this niche.

Bashar, however, warned the use of technology could present a challenge for Malaysia’s Islamic financial ecosystem, as technological advancements are vital for maintaining a competitive edge.

“While the Islamic capital market is domestic-centric, foreign interest remains stable. Foreign holdings of government debt stood at 21.6% at the end of the first quarter of financial year 2026, a high figure compared to other Organization of Islamic Cooperation countries,” he told the StarBiz.

To further attract international capital, particularly from the GCC, the Anwar Ibrahim government plans to launch its first wakalah bi al-khadamat sukuk in 2026. This will bridge the gap between Malaysian and GCC syariah interpretations, potentially opening new inflows of Middle Eastern investments into the Southeast Asian nations.

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“The majority of rated Islamic banks have deployed Islamic derivatives, but adoption is rare amongst rated Islamic insurance companies. Islamic securitisation and sukuk issuances are beginning to embed Islamic derivatives into their structures. However, the Islamic derivatives market still lags conventional derivatives in most core Islamic finance markets. There is a lack of sharia-compliant alternatives to credit, equity, commodity, futures, and digital asset derivatives,” the rating agency noted.

Key barriers to the wider adoption of Islamic derivatives include sharia restrictions, limited standardisation, infrastructure gaps, awareness gaps, and still-evolving financial systems in many OIC (Organisation of Islamic Cooperation) countries.

“The conventional derivatives market is also underdeveloped across most OIC countries compared to other regions. The combined turnover of over-the-counter (OTC) interest-rate derivatives in Saudi Arabia, the UAE, Bahrain, Malaysia, Indonesia, and Türkiye accounted for less than 1% of global volumes in April 2025 (BIS data),” Fitch noted further.

About 75% of Fitch-rated Islamic banks used or offered Islamic derivatives in 2025–1Q26. The list included 100% adoption at rated GCC Islamic banks. These financial products are primarily profit-rate swaps, forward foreign-exchange contracts, and cross-currency swaps, and, in some cases, commodity hedging solutions.

“These instruments perform similar economic functions as conventional derivatives, supporting risk mitigation and potentially enhancing credit profiles. The remaining rated Islamic banks that did not actively deploy derivatives were mainly in Indonesia, Jordan, Iraq, Nigeria, and Tunisia,” Fitch observed.

When it comes to deploying Islamic derivatives, Malaysia has created its niche space as one of the most advanced Islamic banking and financial jurisdictions, offering both OTC and exchange-traded derivatives. However, conventional derivatives still dominate the market, with Fitch estimating that only 1% of such products were Islamic in 2025.

“In GCC countries (excluding Oman), OTC Islamic derivatives are more accessible, while exchange-traded Islamic derivatives are largely absent or nascent. No derivatives were traded on the Saudi Exchange in 1Q26 and most of 2025, the region’s largest stock exchange, despite their introduction in 2020,” Fitch noted further.

The UAE has become the leader among emerging markets in terms of global OTC interest-rate derivative turnover. Volumes reached a daily average of USD 68 billion in 2025, up sharply from USD 4 billion in 2022 (including the Dubai Financial Services Authority), positioning the Gulf major as the 11th largest globally. In April 2026, Dubai’s Virtual Assets Regulatory Authority further advanced the market by announcing a regulatory framework for exchange-traded derivatives in virtual assets.

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As per the American-British credit rating agency, Islamic banking assets in the Southeast Asian country amounted to just USD 44 million as of end-2025, underscoring the archipelagic nation’s still nascent position in a regional market dominated by Malaysia, Indonesia and Brunei.

“Regulators in the Philippines are developing its nascent Islamic finance ecosystem, recently through sukuk guidelines,” Fitch said.

Talking about the Philippines’ efforts towards becoming an Islamic finance growth engine, the country issued its maiden USD 1 billion sovereign sukuk in 2023, which carries a BBB rating. It now has five licensed takaful operators (providers of Shariah-compliant insurance).

ASEAN’s Islamic finance industry exceeded USD 1 trillion in Q1 2026, supported by large Muslim populations, government commitments, accommodative regulation, halal economy growth and digitalisation.

As per Fitch, while the sector’s growth across Southeast Asia remains uneven, tailwinds like stronger links with Gulf Cooperation Council (GCC) countries and closer integration within ASEAN could help the industry players to expand market access, draw investments and support financial inclusion.

Fitch also cited recent agreements by the United Arab Emirates (UAE) with Indonesia, Malaysia and the Philippines that are aimed at deepening Islamic finance collaboration between the countries.

“For the Philippines, cross-border cooperation may provide additional momentum. Still, the Philippines remains far behind more established regional markets. Indonesia’s Islamic banking assets reached USD 61 billion at end-January, while Brunei’s stood at USD 11 billion as of end-2025. In Malaysia, Islamic financing already accounted for 44% of total banking system financing by the 2025 end,” Fitch noted.

While Malaysia leads ASEAN’s Islamic fund industry with around USD 70 billion in assets under management (AUM), Indonesia has emerged as one of the world’s largest sukuk issuers. Brunei, on the other hand, has the highest Islamic finance market share in most verticals, with Islamic bank assets equivalent to about 70% of its banking sector.

“Across ASEAN, about 49% of Islamic finance assets consist of sukuk outstanding, followed by Islamic banking assets at 41%, Islamic funds’ assets under management at 8% and takaful assets at 2%. Nearly half of global sukuk outstanding now comes from the ASEAN. Malaysia ranks first globally, while Indonesia ranks third, with most issuance denominated in local currencies,” Fitch observed.

Also, all Fitch-rated dollar ASEAN sukuk were investment grade, or within the BBB category, as of end-April, with no defaults recorded in the past four years. However, Fitch said that the overall credit environment has become more challenging, with 63% of the region’s sukuk issuers on negative outlooks following the revisions of the sovereign outlooks of Indonesia and the Philippines.

And last but not least, geopolitical tensions, particularly the Iran war, could affect sovereigns and sukuk issuers through higher energy prices, heavier subsidy burdens, weaker currencies, wider credit risk premia and tighter external funding conditions.

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At the heart of AX28 is the belief that modern banking must be personal. As President & Group Chief Executive Officer, Datuk Wan Razly Abdullah observes, customers increasingly expect their bank to understand their ambitions and respond with sincerity and precision. This focus on personalisation and empathy underpins the first pillar of unrivalled customer service, where experiential lifestyle offerings now set AFFIN apart in an increasingly competitive landscape.

This balanced, customer‑centric approach is reflected in the Group’s performance across key metrics. As of December 2025, year‑on‑year loan growth reached 10.4 per cent, lifting total loans to RM79.5 billion (approximately USD 20.1 billion). Total assets expanded from RM69 billion (USD 17.5 billion) in 2020 to RM124 billion (USD 31.4 billion) by end‑2025, while market capitalisation grew from RM3 billion (USD 0.76 billion) to nearly RM7 billion (USD 1.77 billion) over the same period, signalling steady progress anchored in disciplined growth.

The momentum is anchored by AFFIN’s brand promise: “Always About You.” What began as a symbol of empathy has evolved into a guiding philosophy for AX28, shaping how the bank designs solutions, builds partnerships and creates value. It reinforces the belief that unrivalled customer service is not a new ambition, but a continuation of a promise AFFIN has upheld for five decades by placing customers at the centre of every decision.

This shift is most evident in the lifestyle ecosystem AFFIN has cultivated between 2023 and 2025. Rather than offering isolated benefits, the bank has curated a connected universe of experiences across travel, hospitality, automotive, entertainment and sustainability. Each partnership deepens emotional connection, supports multi-product engagement and transforms banking into a lifestyle relationship that enhances customers’ everyday lives.

Travel sits at the heart of this evolving ecosystem. AFFIN’s partnership with the “World’s Best Airline” elevates mobility through premium privileges, exclusive upgrades and enhanced journeys. Its signature “Buy One Free One Business Class Tickets Campaign” transforms loyalty into meaningful shared experiences for customers and their families. These offerings are complemented by the AFFIN INVIKTA Visa Infinite card, and beginning in 2026, eligible business class travellers will also enjoy complimentary limousine transfers, creating a seamless transition from home to runway.

Leisure partnerships further extend these experiences nationwide. Through Marriott International Malaysia, AFFIN offers access to 58 Marriott Bonvoy hotels across the country, complemented by curated dining privileges and tailored lifestyle engagements. These initiatives reinforce the bank’s belief that meaningful experiences build lasting customer relationships beyond financial transactions.

The same commitment to enriching lives also shapes AFFIN’s nation‑building partnerships. AFFIN’s collaboration with the Badminton Association of Malaysia reflects the AFFIN Group’s belief that responsible banking goes beyond finance; it includes uplifting national pride, unity, and excellence. As Malaysia’s most iconic sport, badminton represents discipline, resilience, and global ambition, values that align closely with AFFIN’s own transformation journey.

Through this partnership, AFFIN supports both elite athletes and grassroots development, empowering young talent and strengthening Malaysia’s long‑standing sporting legacy.

The automotive segment adds another dimension to AFFIN’s lifestyle proposition. Collaborations with premium marques enable bespoke ownership and financing solutions for high-net-worth clients and motoring enthusiasts. This includes Malaysian luxury manufacturer Bufori, whose newly launched CS8 model reflects craftsmanship and engineering excellence.

Built with a carbon fibre and Kevlar hybrid composite monocoque body and powered by a supercharged 6.4 litre V8 engine, the CS8 represents individuality, performance and heritage. AFFIN’s tailored financing solutions support customers who value exclusivity, bespoke design and refined luxury.

Entertainment brings a vibrant dimension to AFFIN’s expanding lifestyle universe. Through strategic partnerships with Golden Screen Cinemas and campaigns such as complimentary movie ticket offers, customers enjoy access to the latest cinematic experiences.

These efforts have been further elevated through major concerts featuring AFFIN’s Brand Ambassador, iconic Malaysian songstress Dato’ Sri Siti Nurhaliza, positioning the bank at the forefront of Malaysia’s contemporary entertainment scene. These initiatives reflect AFFIN’s commitment to creating experiences that resonate emotionally and strengthen the connection between lifestyle and banking.

Such an experience is shaping how customers travel, the brands they engage with, the spaces they visit and the causes they support. It also inspires innovations such as AFFIN FINTURA Spend/-i and FINTURA Savr/-i, which encourage early financial independence for teenagers, alongside solutions that support global education pathways. Regionally inspired card offerings, including the Kenyalang, Selangor and Kinabalu Cards, strengthen identity and belonging through meaningful financial expression.

Beyond lifestyle, AFFIN continues to expand opportunities for global wealth creation. The AFFIN London Home solution enables internationally minded clients to invest confidently in the United Kingdom, offering ringgit-denominated financing of up to RM15 million across London Zones 1 to 6 and key districts in Manchester. With competitive margins, flexible tenures and expert advisory support, the solution reflects AFFIN’s commitment to supporting cross-border ambitions as customers grow globally.

These initiatives complement AFFIN’s expanding wealth and premium banking propositions. AFFIN INVIKTA supports emerging professionals and affluent customers through integrated financial and lifestyle privileges, while AFFIN DIVENTIUM delivers bespoke advisory, succession planning and sophisticated wealth structuring for high and ultra-high net worth individuals. Together, they reflect the close relationship between financial empowerment and lifestyle aspiration that defines modern wealth engagement.

Within this premium ecosystem, the AFFIN DIVENTIUM metal credit card stands as a symbol of identity and distinction, reflecting the bank’s dedication to refined service design and exceptional value. Physical touchpoints are also being transformed as branches evolve into modern spaces that combine digital ease with personalised engagement, supported by biometric-enabled services and enhanced advisory suites. DIVENTIUM customers may also access specialised offerings such as yacht financing to support a luxury adventure lifestyle.

Supporting these customer-facing advancements is a strengthened digital and operational backbone. AFFIN has modernised its core banking systems, upgraded digital payment architecture and deployed cloud-based financial and reporting platforms. While less visible, these investments enable faster onboarding, smoother transactions, enhanced wealth journeys and more reliable digital performance, allowing the bank to respond with greater agility and precision.

AFFIN’s experience-driven approach is grounded in its commitment to national development, youth empowerment, and environmental stewardship, reinforcing its responsible banking with an impact pillar. This is demonstrated through the bank’s support for Klang River rehabilitation via the Interceptor, a specialised river clean-up vessel aligned with national sustainability priorities, alongside community- and school-focused partnerships that build long-term societal resilience through education and awareness.

These efforts are further affirmed by AFFIN’s recognition in the latest FTSE4Good semi-annual review, with its ESG rating upgraded from three to four stars, underscoring the AFFIN Group’s commitment to sustainability and its standing among Malaysia’s leading publicly listed companies.

Regionally, AFFIN continues to strengthen its growth positioning. Collaborations with MUFG Bank Malaysia, Daiwa Securities Group and Generali Insurance enhance trade connectivity, expand wealth capabilities and unlock cross-border opportunities for businesses and individuals. These alliances reflect AFFIN’s aspiration to be a Malaysian bank with regional relevance and global capability.

AFFIN’s progress has earned strong international recognition, including its first-ever Moody’s A3 international credit rating, affirming the company’s financial strength and stability. These achievements carry added significance as AFFIN celebrates its 50th anniversary, marking half a century of service, innovation and nation building. AX28 represents the next chapter of this journey, honouring AFFIN’s legacy while responding to evolving customer expectations.

AFFIN President & Group CEO, Datuk Wan Razly Abdullah said, “As we celebrate our 50th anniversary, our vision is clear: to be Malaysia’s Most Creative and Innovative Financial Company and a trusted partner across ASEAN. Every experience we design matters, and we deliver it with sincerity and passion. Under AX28, these initiatives converge with a single purpose, which is to maximise lifetime value by delivering meaningful, relevant and memorable experiences.”

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According to the industry body, while Malaysia’s economic fundamentals remain sound, geopolitical tensions may have indirect spillover effects through higher energy prices, market volatility and potential disruptions to trade and supply chains.

“These could impact business costs, inflation, and cash flows for certain segments of the economy. The Islamic banking industry remains vigilant and ready to respond to these evolving risks,” AIBIM said, while adding that the industry players are also advancing value-based intermediation (VBI) to deliver sustainable and inclusive outcomes.

Talking about the health of Malaysia’s Islamic finance sector, as per Bank Negara Malaysia (BNM), in its 2025 annual report, noted that Islamic financial assets in the Southeast Asian country have more than doubled from USD 468 billion in 2014 to USD 954 billion in 2024, with regional peers like Singapore and the Philippines also experiencing notable growth.

According to the BNM report, building on its strong domestic foundation, Malaysia has emerged as a regional leader in Islamic finance, expanding services, fostering innovation, and supporting cross-border growth. Last year, nine participants from ASEAN used the country’s commodity trading platform, Bursa Suq Al-Sila, completing transactions valued at RM55.9 billion for the year. In fact, in Malaysia and Indonesia, sukuk has been widely used to fund the development of various infrastructure projects and green initiatives.

“More recently, Islamic finance has increasingly been channelled toward green and transition-related activities. Indonesia and Malaysia collectively contributed 45% share of the global sustainable and responsible investment and environmental, social, and governance (ESG) sukuk outstanding in 2024. This reinforces the sector’s alignment with broader ESG objectives and strengthens its role as a catalyst for sustainable development,” BNM said.

The central bank also noted that by September 2025, Malaysian players captured 82% of Asean’s Islamic banking assets, while dominating the takaful and retakaful segments with a massive 91% share. The Southeast Asian country also accounts for about 75% of total outstanding sukuk in ASEAN.

“Beyond financing, Islamic finance also plays an important role in promoting inclusive wealth distribution through instruments such as zakat, waqf and sadaqah. In Indonesia, for instance, innovative instruments like cash waqf-linked sukuk and deposits enable individuals to channel funds into social, humanitarian, and public projects,” the report noted.

“Malaysia, meanwhile, has actively leveraged a blended financing initiative known as iTekad to support entrepreneurial activities by combining banks’ financing with zakat‑based seed capital, further reinforced by capacity‑building programmes and skills training. As these communities expand their income‑generating activities, they evolve from recipients to economic contributors who help uplift others. As a result, this creates pathways for more inclusive and sustainable growth within the economy,” it concluded.

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Announcing the move, Capital A founder and CEO Tony Fernandes said Hamid’s onboarding will help spearhead growth, including a possible listing of the business in Hong Kong ⁠by mid-2026.

In January 2026, Capital A completed the sale of its short-haul aviation business to AirAsia X, allowing the latter to focus on expanding operations and reducing costs while Capital A looked to grow its businesses in areas including logistics, branding and aircraft maintenance. The move, along with Hamid’s appointment, comes amid both companies facing headwinds caused by the Middle East conflict, which has sent jet fuel prices soaring.

Capital A’s shares are down 27% over the past month, while AirAsia X’s have plunged 41%.

According to Tony Fernandes, Capital A has seen an ‌impact from the Middle East conflict on its businesses, which include aircraft maintenance, freight and logistics, food catering and branding services. However, AirAsia would work to keep its fares low, while desisting from the practice of cancelling flights amid the ongoing conflict. The budget carrier would also provide updates on its operations in the first week of April.

Capital A is also aiming to list its branding unit, AirAsia Next, in the United States by the end of 2026, reviving a plan that was called off two years ago.

Tony Fernandes also stated that the listing plans for Capital A and AirAsia Next were dependent on the group’s exit from PN17 classification, a tag given by Malaysia’s stock exchange to financially distressed companies.

Capital A has been classified as PN17 since 2022, after incurring massive losses due to COVID-19 pandemic-related disruptions.

“We just need to submit our audited accounts (to the stock exchange). I don’t want to jump the gun, but that’s the last thing we have (to do),” Tony Fernandes concluded.

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“In recent months, central banks from Guatemala, Indonesia and Malaysia have all bought gold, either following a long hiatus or for the first time ever,” said Shaokai Fan, global head of world banks for the World ‌Gold Council.

“A phenomenon we’ve been seeing in the last few months is new central banks, or ⁠central banks that have been inactive or absent from the gold market for a long time, entering the gold market. I think that might be a trend that will continue into 2026,” the official commented.

“Some central banks are also buying gold from ‌small-scale domestic producers to ⁠support the local ⁠industry and to stop those gold sales going to bad actors,” Fan noted without elaborating on the details.

In March 2026, gold prices had plunged by more than USD 1,000 per troy ‌ounce to last trade around USD 4,340, and talking about this, Fan told Reuters, “Historical trends suggest ⁠it’s partly due to margin call-related selling.”

“The record peak for gold was just shy of USD 5,600 in late January. During a gold selloff in October, central banks stocked up on the metal, but it’s too early to see if the same phenomenon has occurred with this month’s rout. Central bank demand for gold may decline because higher prices not only deter new buying but also ‌increase the weight of existing gold holdings relative to total reserves,” Fan said.

The World ‌Gold Council, as per its January estimates, expects record gold prices to slow purchases by central banks to 850 metric tons in 2026 from 863 tons in 2025, even though their buying remains elevated when compared to the pre-2022 level. The same buying process ⁠accounted for some 17% of total demand in 2025.

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Malaysia’s Investment, Trade, and Industry Minister Datuk Seri Johari Abdul Ghani stated that the US-Malaysia Agreement on Reciprocal Trade (ART) no longer holds any legality. He further claimed the deal was not suspended or paused, but terminated.

“It is not on hold. It is no longer there, it’s null and void,” Johari said, as reported by the New Straits Times. He further told reporters that if tariffs were imposed and legitimised based on a trade surplus, authorities should clearly specify the industry involved instead of implementing the mechanism on a blanket basis.

The ART was signed on the sidelines of the 47th ASEAN Summit in Kuala Lumpur in October 2025, with Donald Trump and Prime Minister Anwar Ibrahim as signatories. The agreement covered roughly 12% of Malaysia’s exports to the United States, offering improved market access for Malaysian exporters while making American products more competitive for Malaysian businesses. Under its terms, the world’s largest economy maintained a 19% reciprocal tariff on most Malaysian imports, with carve-outs for select goods.

The voiding of the deal comes at a particularly fraught moment. In March, the Trump administration launched a sweeping Section 301 trade investigation, authorised under the Trade Act of 1974, targeting 16 trading partners, including Malaysia.

Section 301 allows Washington to impose additional tariffs on countries found to be engaging in unfair trade practices. Johari identified Malaysia’s key vulnerable sectors as electrical and electronics, oil and gas, plantation commodities including palm oil, rubber gloves, and other rubber-based goods.

He stressed that Malaysian exporters must ensure compliance with labour and environmental standards to minimise exposure.

Domestically, the development has triggered a political response. Opposition coalition Perikatan Nasional has called for a special parliamentary session to address the collapse of the agreement, with secretary-general Takiyuddin Hassan warning of potential damage to export sectors and supply chains.

Donald Trump, for his part, has warned of significantly higher retaliatory tariffs against any nation attempting to exploit the Supreme Court ruling to unpick existing trade arrangements, a threat that hangs directly over Kuala Lumpur’s decision.

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The demand will also be driven by supportive economic environments in core Islamic finance countries and by the United States Federal Reserve’s likely continuation of monetary easing policies.

“Overall, we expect issuance to reach USD 270-USD 280 billion, including foreign currency issuance of USD 100-USD 110 billion,” said the rating agency’s Islamic Finance Head Mohamed Damak.

In 2025, the sukuk market remained concentrated among a few issuers, with GCC countries Saudi Arabia and the UAE accounting for 45% of issuance volume, followed by Malaysia.

“While we do not expect this structure to change significantly, we have seen interest from new issuers, with some successfully entering the market, such as Egypt,” the senior official added.

S&P expects new issuers to tap the Islamic finance market in 2026 to diversify their investor base and secure more competitive pricing than conventional bonds.

Also, global sukuk issuance increased to USD 264.8 billion during the year, up from USD 234.9 billion in 2024, underpinned by strong performance from Malaysia, Saudi Arabia, Turkey, the UAE and Bahrain.

In fact, Saudi Arabia was the second-largest contributor to last year’s growth tally, with USD 72.5 billion in sukuk issuance, including USD 38 billion in foreign currency, rising 35% from 2024. Additionally, the Kingdom’s banking sector issued more than USD 15 billion in sukuk, including nearly USD 12 billion in foreign currency-denominated sukuk, to continue funding “Vision 2030” initiatives.

The UAE, on the other hand, contributed USD 22.1 billion in issuance, of which USD 19 billion was in foreign currency.

“Real estate developers, particularly in Dubai, were among the UAE’s top issuers as they sought funds to finance land acquisition and launch new construction projects amid favourable demand trends. The report also highlighted downside risks to the outlook, including the possibility of a major spike in geopolitical risk, which could reduce investors’ appetite for sukuk and bond issuances from the GCC,” Damak concluded.

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