‘LOCAL BOND MART ATTRACTIVE’

Many big infrastructure projects have been financed through issuance of bonds, says economics professor

KUALA LUMPUR

THE local bond market’s sustained growth is a reflection of the attractiveness of Malaysia’s debt capital market in meeting the financing needs of both the government and the private sector.

Dr Yeah Kim Leng, professor of economics at Sunway University Business School, said of particular importance to the private sector was the continuing access to the domestic bond market as a reliable source for large scale, long-term and low-cost funding.

Bank Negara Malaysia recently said the bond market had expanded to RM1.2 trillion, or 90 per cent, of gross domestic product (GDP) as at end of last year.

The market grew at an average 10.5 per cent annually since 2006.

The government’s bond segment increased 10.1 per cent per year to RM634 billion, while corporate bonds including sukuk (Islamic bonds) expanded 10.9 per cent per year to RM534 billion.

The dynamism of the domestic bond market is reflected in the steady stream of bond issuances, stable yields and active secondary market activities, said Yeah, when commenting on Bank Negara’s latest numbers.

“Not surprising therefore, many large infrastructure projects have been financed through the issuance of bonds. This availability of bond financing sources has enabled the construction sector to sustain an average growth of 7.6 per cent a year, above the average annual GDP growth of 4.8 per cent over the same period.”

He said the bond market is resilient to non-resident outflow.

“The reversal of capital flows in the Malaysian bond market was evident in the declining share of non-resident holdings of government securities which stood at 29.6 per cent as at end January.”

Yeah added that based on Bank Negara’s latest data, the non-residents’ share peaked at 34.7 per cent last November.

“The sell down by non-residents picked up following Donald Trump’s election victory and Bank Negara’s actions to stabilise the ringgit, including measures to curb the off-shore nondeliverable forward market,” he said.