Flight to safety factors to influence foreign bond investors in May

Head of research Kristina Fong said RAM Ratings projected export expansion to decelerate to 1.4% in February while imports contracted to 3.3%, which would result in an overall trade surplus of RM12.1bil for the month

KUALA LUMPUR: Foreign bond investors are expected to be driven by "flight to safety" dynamics in May given the prevailing global uncertainties.

In a note issued today, RAM Ratings head of research Kristina Fong said investor behaviour is expected to be largely influenced by events such as the US-China trade war and potential oil market disruptions from wider Iran sanctions and rising US-Gulf tensions.

She said it was unlikely that the market would see a repeat of the volatility it had experienced in April.

"In view of FTSE Russell’s ongoing engagement with industry players and regulatory authorities as well as Bank Negara Malaysia’s new measures to enhance onshore market liquidity and accessibility, announced on 16 May, the same pronounced volatility experienced in April is unlikely," she said.

The FTSE Russell's inclusion of Malaysian on its watchlist triggered foreign net outflows of RM9.8bil in April.

However, the effect on the market was short-lived as benchmark yields and corporate spreads normalised after the initial sell-off in the days following the news, Fong noted.

The same could not be said for USD/RM levels, which have been dampened by ongoing geopoliticals concerns.

According to Fong, corporate bond issuances have beaten expectations for the start of the year, reaching RM37.5bil as at April 2019. 

RAM has increased its estimates for the year accordingly to beween RM90bil and RM100bil, from a lower range of RM70bil to RM80bil previously.

"Much of the upside has stemmed from bulky quasi-government issues by entities such as Perbadanan Tabung Pendidikan Tinggi Nasional, Danainfra and Prasarana Malaysia Berhad, as well as large issuances by financial institutions and property-related entities such as IJM Land Berhad and Sunway Berhad," said Fong.