Experts brush off concerns about FTSE Russell’s WGBI removal risk

The Malaysian Government Securities (MGS) 10-year benchmark yield -- which is currently at 2.64 per cent -- remains attractive for investors.

KUALA LUMPUR: Fixed income experts have brushed off concerns that Malaysia’s bonds are at risk of being excluded from the FTSE Russell’s World Government Bond Index (WGBI) watch list in September 2020.

Instead, they believe that the Malaysian Government Securities (MGS) 10-year benchmark yield -- which is currently at 2.64 per cent -- remains attractive for investors.

AllianceBernstein Holding LP managing director and senior investment strategist for fixed income, Jonathan M Liang said the company made an "overweight” call on Malaysian bonds early this year, as they are more concerned about the central bank’s monetary policy decision, rather than the potential exclusion from the WGBI.

"In terms of our global strategy, essentially, we would position more on what Malaysia is leaning towards, such as the central bank’s decision to loosen the monetary policy, but not so much on the index exclusion.

"We do not think the index exclusion is a huge issue for our strategy at this point, ” he said during RHB Asset Management Sdn Bhd’s webinar, titled "The Case for Fixed Income-Investing in a Near Zero Interest Rate Environment” today.

Meanwhile, RHB Asset Management Pte Ltd head of fixed income Ng Khim Hau said the 10-year MGS yield of 2.64 is relatively attractive compared with the benchmark 10-year US Treasury yield of 0.62 per cent.

"I believe investors have partially priced in the risk of being excluded from the index, because this is not a new risk as Malaysia’s bonds were already a question mark back then when the FTSE Russell reviewed the bonds in the previous two rounds, ” he said.

He noted that if Malaysia is excluded in the next round of revision in September 2020, an inevitable knee-jerk negative reaction would occur, but the fall would be limited by the deflationary situation in Malaysia.

"In the current deflationary situation, where the country’s Consumer Price Index (CPI) has been in the negative territory since March this year, it is actually much more attractive for foreign investors, ” he said.

The Department of Statistics Malaysia announced today that Malaysia’s CPI -- which measures the inflation or deflation of the country -- has decreased by 1.9 per cent year-on-year in June 2020, mainly due to the 14.3 per cent decline in the transport component. - Bernama

TAGS: Malaysian Government Securities, FTSE Russell, World Government Bond Index, bonds, RHB Asset Management, AllianceBernstein

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