Malaysian financial market remains resilient

Total foreign ownership of ringgit government bonds stood at 22.7% in July, an increase from the 22.2% recorded in June.

PETALING JAYA: The Malaysian financial market remains resilient and continues to function efficiently despite a challenging global economic environment from the Covid-19 pandemic, said the Financial Markets Association Malaysia.

The association said in the second quarter, Malaysia’s growth slowed to a pace of -17.1% year-on-year (y-o-y), in line with other regional peers following measures introduced to contain the spread of the pandemic.

Similar growth contractions were seen across Asian economies including Singapore, the Philippines and Indonesia, which recorded negative growth prints in the second quarter of -13.2%, -16.5% and -5.3% y-o-y respectively, it added.

The association said despite the negative growth print registered in the second quarter this year, domestic growth is expected to improve in the second half of 2020 with the gradual reopening of economic activities.

The recent rebound in exports seen in June at 8.8% y-o-y versus a contraction of -25.5% in May can be attributed to further easing in movement controls, which are expected to provide renewed positive catalysts to support growth recovery in the last six months of 2020.

“We have observed limited economic activity for the period between April and June due to strict enforcement.

“However, by late June we had witnessed a pick-up in major economic activities, primarily in the manufacturing, agriculture and construction sectors given that most sectors were reopened and movement control orders were relaxed.

“It is likely that going forward there is a very strong possibility of a sharp recovery taking hold of the economy, ” said the association in a statement yesterday.

It noted that Malaysia has injected almost RM45bil in fiscal support directly, which amounts to about 3% of its gross domestic product and this is part of a planned RM295bil total injection into the economy.

In the ringgit bond market space, trading activities were healthy, recording a robust daily transacted volume of RM5bil for ringgit government bonds and sukuk year-to-date, higher than the daily average traded volume of RM4.2bil observed during the same period in 2019.

Meanwhile, the monthly average traded government bond and sukuk volume in 2020 remained robust with RM102bil transacted, higher than the monthly average of RM85bil recorded in 2019.

The association said the robust trading volumes are reflective of efforts by Bank Negara to enhance liquidity, which include amongst others, increasing the availability of off-the-run bonds to be borrowed via repo for market-making activities.

The 2020 auction calendar continues to feature more reopening tenders to increase the depth and liquidity of existing benchmarks, with the size of the outstanding 10-year benchmark currently reaching above RM20bil.

“Although combined issuances of new primary corporate bonds in the first half of 2020 were lower at RM38.8bil versus RM74.9bil raised in first half of 2019, we expect the momentum to pick up in the second half of 2020.

“This is because corporates are compelled to lock in on lower borrowing cost with issuances skewed towards the longer-dated spaces, ” it said.

It noted that issuance momentum has grown considerably in recent weeks following the pre-emptive overnight policy rate (OPR) cut of 25 basis points by Bank Negara in July, which brings the current OPR level to a record low of 1.75%, ” said the association.

On another note, foreign ownership of ringgit-denominated bonds gained positive traction in recent months, with positive bond inflows for the months of May, June and July of RM1.5bil, RM11.6bil and RM7.1bil respectively.

Total foreign ownership of ringgit government bonds stood at 22.7% in July, an increase from the 22.2% recorded in June. — Bernama

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