Malaysia’s bond market to remain robust this year, hits record high in 2017
KUALA LUMPUR: The latest edition of RAM Ratings’ Bond Market Monthly highlights that gross issuance of Malaysia’s corporate bonds has hit a record high of RM124.9 billion in 2017, surpassing RAM Ratings’ expectation of RM105 billion to RM115 billion.
As such, RAM Ratings believe that the bond market will remain robust this year, driven by a healthy pipeline of issuance from various sectors.
According to RAM Ratings, the last time gross issuance reached such a lofty level was in 2012, clocking in at RM121.1 billion.
The robust issuance in 2017 was supported by both sub-segments of the corporate bond market, which are quasi-government and private, which posted double-digit y-o-y growth rates of 46.1 and 45.6 per cent, respectively.
“The bond market will remain robust this year, with RM90 billion to RM100 billion of gross corporate bond issuance expected.
“This will again likely be driven by a healthy pipeline of issuances from the financial institutions and infrastructure & utilities sectors, which have traditionally issued the lion’s share of the market’s corporate bonds,” observed RAM’s head of Research, Kristina Fong.
Last year, total issuance of MGS and GII came in at RM113.9 billion – surpassing the ratings agency’s projection of RM100 billion to RM110 billion.
“Taking into account the Government’s deficit financing needs and the RM62.8 billion of MGS and GII set to mature this year, we expect gross issuance of long-term government debt securities to sum up to RM100 billion-RM110 billion in 2018,” RAM Ratings said.
Overall, it pointed out that foreign holdings of Malaysian bonds posted a net outflow of RM8 billion in 2017, as opposed to a net inflow of RM825 million in 2016.
“The bulk of the outflow occurred in the first quarter, following Bank Negara Malaysia’s (BNM) curbing of offshore ringgit trading in November 2016; foreign investors had subsequently wound down their positions in the Malaysian bond market by RM37.4 billion,” it explained.
Although the trend reversed in the second quarter of 2017 (2Q17), it said that after the announcement of BNM’s liberalisation initiatives on currency and interest-rate hedging mechanisms onshore, the cumulative inflow of RM29.4 billion in the last three quarters could not compensate the excessive knee-jerk reaction at the start of the year.
Moving forward, RAM Ratings believed that the Malaysian bond market could experience pressure from the outflow of foreign investors this year, stemming from external global developments such as the relative pace and timing of future monetary policy tightening by the US Federal Reserve.
“That said, the brighter outlook for the ringgit – which has so far maintained its uptrend against the greenback in January, having appreciated more than three per cent since end-December 2017 – may offer some support to foreign investments.
“Moreover, the market remains vulnerable to geopolitical risk – a major driver of market uncertainties in 2018,” it added.