“While acknowledging the measures to improve liquidity and accessibility of both bond and forex markets, more time is needed to assess the efficacies of these improvements,” the research house said on Friday.
Maybank Research while FTSE Russell acknowledged Bank Negara Malaysia's initiatives to improve market accessibility for foreign investors, it seemed that more time is needed to assess the efficacies of these measures to maintain the Market Accessibility Level of Malaysia at 2.
The level 2 is a minimum requirement for the Word Government Bond Index (WGBI).
Maybank Research said measures acknowledged by FTSE Russell include more re-openings in auction calendar to increase the average outstanding size per issuance, higher availability of MGS via repo for market-making purpose.
Other measures are improvements in the Appointed Overseas Office (AOO) programme allowing Japanese local custodian banks to undertake third party FX and dynamic hedging.
Important updates have aso been made to FTSE Russell’s review process. Effective from March 2021, changes to market accessibility levels can be made in both the interim review in March and the annual review in September, as opposed to the existing process which only allows changes to be made at the annual review in September.
This means that the announcement of index inclusion or exclusion of a country can happen following the interim review.
Meanwhile, Bloomberg reported that based on their weighting in the index, about US$8bil of funds may exit ringgit bonds if they’re dropped, which would represent around 18% of total foreign holdings, NatWest Markets estimates.
The index provider first gave notice in April last year it could exclude Malaysian debt from its index as part of a review into the accessibility of global bond markets. The central bank has since rolled out measures to address the concerns, including giving businesses more flexibility to hedge, although it stopped short of reversing a ban on offshore currency trading, the news wire reported.
JPMorgan Chase & Co. said last year it’ll cut Malaysia’s weighting in its GBI-EM Global Diversified Index to 5.17% from 6.12% as part of a broader revamp to make room for China’s bonds.
Meanwhile, China will be added to WGBI from October 2021, although it is subject to a final confirmation in March 2021 and the implementation of several planned reforms. Phased inclusion will take place over 12 months from October 2021.
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