KUALA LUMPUR: AmBank Research sees Norway's sovereign wealth fund pullout from Malaysia's government bonds under its streamlining exercise to be gradual and the outflow will not cause a major impact.
Norway’s Government Pension Fund Global (GPFG) holds US$1.96bil (RM8.0bil) or 5.3% of Malaysia's government securities (MGS) as at end-March 2019.
“If the entire RM8.0bil flows out of our MGS at the same time, it will impact the ringgit against the US dollar, weakening the local currency by 0.62% while the 10-year MGS yield will rise by 7bps.
“However, we believe the outflow of the RM8.0bil will be gradual and hence will not cause a major impact,” it said in a research note on Thursday.
GPFG, which is the world's largest, announced it would streamline its US$300bil fixed-income portfolio by cutting emerging market bonds from the benchmark index it tracks. This would impact Malaysia and nine other countries.
Currently worth US$1.05 trillion, GPFG has invested around 30% in fixed income and the balance 70% in equities. Its latest decision did not affect the equities market.
AmBank Research said besides the fund’s fairly low exposure of 5.3% to total foreign holdings in Malaysia's MGS, “the strong liquidity in our bond market, added with healthy macro fundamentals such as steady growth, healthy reserves, current account surplus, low inflation and real money flows should support yields”.
The research house is projecting the 10-year MGS yield at 3.75% to 3.80% as our “prudent” levels with room to reach 3.70% if a 25bps Overnight Policy Rate rate cut is instituted.
If there is no rate cut, it expects the10-year yield to move back to its original levels of 3.90% to 4%.
“We expect total gross issuance of MGS/GII in the primary market for 2019 to hover between RM120bil and RM125bil with the ringgit corporate bond and Sukuk market total issuance at RM80bil to RM85bil for the year,” it said.