Other agencies not expected to follow Fitch’s rerating step

RHB Banking Group chief economist and head of market research Sailesh Kumar Jha said the domestic capital market was resilient and the downgrade by Fitch would not really impact the debt market.

PETALING JAYA: The move by Fitch Ratings to downgrade Malaysia’s sovereign rating will not be followed by other global rating agencies and this will not derail the country as a safe haven for the capital market.

RHB Banking Group chief economist and head of market research Sailesh Kumar Jha said the domestic capital market was resilient and the downgrade by Fitch would not really impact the debt market.

“The long dated Malaysian government bonds, for example those with the 15-year tenure, are doing well, underpinned by strong liquidity as well as domestic and external conditions.

“We don’t expect Fitch’s actions to be followed by other global rating agencies like Moody’s or S&P Global Ratings.

“Furthermore, even after the downgrade was announced, there was not much impact on the ringgit and investors were still buying the country’s bonds, ” he said during a briefing in conjunction with the launch of RHB’s Flagship Research Publication: Path Finder.

On Dec 1, Moody’s Investors Service maintained Malaysia’s sovereign debt rating of A3 with a stable outlook.

However, on Dec 5, Fitch Ratings downgraded the nation’s rating to BBB+ from A-.

It cited lingering political uncertainty that weighs on the policy outlook as well as prospects for further improvement in governance standards.

This marks Fitch’s first downgrade in 16 years since 2004 when it raised the country’s rating to A- from BBB- in April of that year.

Jha noted that Fitch’s assessment of Malaysia was not accurate, partly due to the fact that Malaysia’s external liquidity conditions are still good as it has a large investor base.

Besides its lack of depth in assessing the banking sector, its governance and policy making assessments were questionable.

The rating agency needs to have a more detailed view of the public sector and how policy is conducted, he said.

He said RHB’s gross domestic product growth forecast of 6.3% for next year was lower than the consensus estimates.

He attributed this to slower demand for exports, among others, in the electrical and pharmaceutical space, etc, as well moderate demand in the consumption side.

Jha noted that the measures under Budget 2021 to boost the construction, infrastructure and transportation augur well and would be a boost to the economy.

In terms of the monetary policy, he expects the overnight policy rate or OPR to remain unchanged at 1.75% in 2021.

On another note, Jha is bullish of the US dollar and expects it to rebound by 3% next year and the 10-year US treasuries to average around 0.8% in the same year.

As for the Asian currencies basket, he expects it to depreciate around 2%, mainly due to the yuan depreciation against the US dollar.

Among the drivers for the US dollar would be an improvement in the trade deficit to US$40bil from the current US$62bil, he said.

He also does not expect President-elect Joe Biden to make a significant breakthrough in the US China trade war, adding that he expects pressure to continue leading to the deceleration of US imports from China.

Jha said that the US currency could strengthen if the global economy slows down next year.

But if this happens, the global slowdown would drag down the Asian currencies and in turn strengthen the US dollar.

He expects the ringgit to trade at between RM4.10 and RM4.15 against the US dollar next year.

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