REGARDLESS of the harsher external environment, Malaysia, which top-ped the list of investment grade countries in the region last year, is expected to continue to outperform its regional peers.
Last year, the average total return for fixed income investors of Ma-laysian debt papers was13%, against the average of 10%-12%, according to JP Morgan vice-president and Asia Sovereign Research head David G. Fernandez.
In an external environment that has gotten meaner, Malaysia remains less affected compared with other nations such as South Korea, which had previously enjoyed better ratings than Malaysia, but which has since seen its ratings dented by military manoeuvres in North Korea.
“There's been a lot of changes outside Malaysia, but our view of the country is still positive,” Fernandez said.
Fernandez said during an interview in Kuala Lumpur yesterday that JP Morgan remained bullish and overweight on the country - a view it had held for the past 15 months.
Malaysia, one of the largest bond issuers, constitutes about 20% of the benchmark JP Morgan Asia Credit Index, second only to South Korea at 23%.
According to Fernandez, yields are expected to be lower this year, however, given JP Morgan's view that US interest rates will rise this year.
Nonetheless, he indicated that Malaysian issues would still be looked upon favourably due to its sound fundamentals and potential for a sovereign upgrade later this year or early next year to single A, placing it back in the position it was in pre-financial crisis of 1997.
“Malaysia's numbers look good and it is a question of timing from the rating agencies' perspective,” JP Morgan vice-president Lian Chia-Liang said.
Fernandez points out that Malaysia's key economic numbers are improving, and that the country is less affected by rising oil prices as it is an oil-producing country.
“We have tempered our expectations for other countries in the region, but are maintaining our overweight call on Malaysia,” he said.
The fixed income specialists are on a three-day investment visit to Vietnam, Malaysia and Indonesia, and have brought a group of Asia-based investors. The trip includes meetings with government officials and major corporates.
According to Fernandez, JP Morgan is eagerly awaiting details of the Malaysian government's new stimulus package, to be announced at the end of the month. In his opinion, the government could issue up to US$500mil in sovereign papers to fund its plans and activities.