Malaysian bonds still attractive despite global index ‘watch list’ status

PETALING JAYA: Malaysian bonds remain attractive to international investors despite the uncertainties due to its watch list status in FTSE Russell’s World Government Bond Index (WGBI) according to Sunway University Business School professor of economics Dr Yeah Kim Leng.

“In the light of the current low yield environment in the bond market, Malaysian bonds still retains a positive yield differential that will attract international investors seeking to increase their yield,” he told SunBiz.

He said there has been a call for government to employ fiscal stimulus rather than resorting to unconventional monetary policy such as negative interest rate or zero-bound rates.

“Until those issues are addressed, the search for a higher yield in the fixed income market will prove to be a positive for emerging markets including Malaysia.”

Although the fate of Malaysian Government Securities (MGS) in the index remains unclear until the next review in March 2020, Yeah said the decision has lifted the concerns of bond market players.

“Even though Malaysia remains in the watch list, it is still positive development for Malaysia, at least in the short term,” he said.

On the other hand, UOB Malaysia senior economist Julia Goh pointed out that FTSE Russell and index users are encouraged by the efforts and engagement of Malaysian authorities to address concerns on market liquidity and accessibility.

Bank Negara Malaysia (BNM) said earlier that it has had positive engagements with the index provider, following further liberalisation of the foreign exchange administration rules to improve market liquidity and accessibility.

“These measures have helped to sustain Malaysia’s position in the WGBI for now, FTSE retains Malaysia on the watch list to ensure sufficient progress of reforms,” said Goh.

However, JF Apex head of research Lee Chung Cheng is not so optimistic on the latest development as it could lead to sell-off on Bursa Malaysia.

“This will translate into an increase in volatility for MGS and ringgit until the next review in March,” said Lee.

AmInvestment Bank Research also highlighted the overhanging concern on potential US$8 billion (RM33.6 billion) foreign outflows from the Malaysian bond market in the event of a downgrade.

“Apart from Malaysian bonds, a downgrade would hurt the ringgit, and in turn, the appetite for Malaysian equities as well.”

The FBM KLCI declined 8.86 points or 0.56% to 1,584.14 points last Friday, while the ringgit appreciated 0.18% to 4.1955 against US dollar.

source https://www.thesundaily.my/business/malaysian-bonds-still-attractive-despite-global-index-watch-list-status-NN1429492