CIMB: WGBI EXCLUSION UNLIKELY
Malaysian bonds will remain in index as ‘we are still one of the major markets for investors’, insists Zafrul
CIMB Group is confident that Malaysia’s bonds will not be delisted from the FTSE World Government Bond Index (WGBI) come September.
The banking group responded to global index provider FTSE Russell, which had on Monday said it might drop Malaysian bonds from the FTSE WGBI during its review in September due to concerns about market accessibility and liquidity.
If the downgrade were to take place, some US$9 billion (RM37.28 billion) may leave Malaysian shores, according to an estimate by global investment
bank Morgan Stanley.
CIMB Group chief executive officer (CEO) Tengku Datuk Seri Zafrul Tengku Abdul Aziz said the group was well aware of the announcement and its likely effect on the stock market and the ringgit, but reiterated its confidence that it won’t come to that.
“The fact of the matter is, this is not about downgrading at all, it is about liquidity. The concern is if there is not enough liquidity, we will be excluded from the index and about US$9 billion will leave our shores,” he said in an interview with the New Straits Times.
“This was what they said in the statement until the review in September. I am confident that we will remain in the index because we are still one of the major markets for investors,” he said.
The ringgit weakened to 4.1330 against the US dollar from 4.1085 while the benchmark FTSE Bursa Malaysia KLCI declined by 0.11 per cent, or 1.87 points, following the announcement on Monday.
Zafrul is confident that the Islamic finance market would also be able to withstand any possible downgrade, given the country’s status as the world’s premier Islamic finance hub.
“It will impact our Islamic finance market negatively for sure, if it were to happen, but my team and I believe it’s unlikely to happen because Malaysia is still a key market for Islamic finance and it still has a major role to play,” he said.
“This is of course a concern and if you look at it holistically, our market is deep enough to withstand this and there will be opportunities to participate in regardless,” he said.
In an earlier correspondence, CIMB Investment Bank Bhd CEO Jefferi Hashim said bond and sukuk pipeline remains healthy for the rest of the year.
“The Malaysian bond market is expected to remain resilient this year. We foresee RM100 billion in corporate bond issuances in line with the expected total issuance last year, on the back of funding requirements for infrastructure projects, refinancing activities, bank capital requirements, government guaranteed issuances as well as corporate expenditure requirements.”
He also noted that global investors who were “underweight” on local bonds could potentially benefit, especially in the second half of the year.
“In the long term, the bond market will likely attract inflows, as global investors continue to search for investment grade markets with good yield, including Malaysia. The ringgit may also perform better this year as the United States adopts a more dovish rhetoric on monetary policy, leading to a softer dollar,” said Jefferi.
A renewed interest by foreign investors has been observed in local government bonds/sukuk as inbound demand rose by RM7.3 billion to-date, as foreign participants collectively hold nearly 40 per cent of total outstanding Malaysian government bonds/sukuk, said Jefferi.