PETALING JAYA: The risk of Malaysia being excluded from the World Government Bond Index (WGBI) is lower now after Bank Negara’s initiatives and engagements to address investor concerns, RAM Ratings says.
However, the possibility of an exclusion from the WGBI still cannot be completely discounted because Malaysia remains on the FTSE Russell’s watchlist for a potential downgrade, the rating agency said in a statement yesterday.
“Moreover, China is also still on the watchlist for potential inclusion in the WGBI, ” it said.
To recap, foreign investors’ interest in the Malaysian bond market remained muted in September due to related uncertainties leading up to the FTSE Russell review and the potential inclusion of Chinese bonds in the WGBI. However, the review on Sept 26 was ultimately favourable to Malaysia.
The Malaysian bond market recorded a net inflow of RM908mil from foreign investors.
Even so, it is still an improvement relative to the preceding month, which charted a slight net outflow of RM88.7mil. On the whole, the domestic bond market managed to register a net overall foreign inflow of RM6.5bil in the third quarter of 2019 (3Q19), it said.
“Despite the improvement, it still could not compensate for the sizeable outflow of RM7.4bil in 2Q19, which had been triggered by the placement of Malaysia on FTSE Russell’s watchlist for potential exclusion from the WGBI, ” RAM’s head of research Kristina Fong said.
In September, Malaysian corporate bond issuance accelerated to RM14.9bil (August: RM4.6bil), driven by robust issuance from the quasi-government and the private sector. This brought overall corporate issuance to RM27.7bil in 3Q19.
This strong pace of corporate issuance has been a mainstay through most of 2019, likely due to attractive funding costs, as yields to maturity have been trending downwards since the beginning of the year.
“Despite the relatively muted government bond issuance in September (RM5.5bil), full-year MGS/GII issuance remains on track towards meeting our projection of RM110bil-RM120bil for 2019.
“Going forward, we expect MGS/GII issuance to come up to RM115bil-RM125bil in 2020, taking into account the government’s deficit financing requirements pursuant to the recently tabled Budget 2020 and the refinancing of maturing debts next year, ” it said.