Minimal impact from Norway’s fund pullout from Malaysia
KUCHING: Analysts believe Malaysia will see minimal impact from Norway’s sovereign wealth fund pulling out from several countries, including Malaysia.
To note, the Norwegian wealth fund, currently worth US$1.05 trillion, had invested some 30 per cent into fixed income with the balance 70 per cent in equities.
Last Friday, Norway’s Finance Ministry announced that the fund plans to streamline its US$300 billion fixed-income portfolio by cutting emerging market bonds from the benchmark index it tracks.
Both the government and corporate bonds, which have a total value of US$17 billion as at the end of 2018, would be affected.
The proposal Government Pension Fund of Norway (GPFG) to cut its fixed income portfolio will have to be agreed by parliament. With the Norwegian government holding a majority, a white paper is expected to be passed in June.
Countries affected from the fund’s decision are Chile (US$362 million), the Czech Republic (US$50 million), Hungary (US$63 million), Israel (US$117 million), Malaysia (US$1.9 billion), Mexico (US$5.7 billion), Poland (US$1.05 billion), Russia (US$1.2 billion), South Korea (US$6.3 billion) and Thailand (US$241 million).
“In terms of size, Malaysia is the third largest country with exposure to the fund after South Korea and Thailand,” noted analysts with AmBank Research yesterday.
“Meanwhile, Asian countries which are enjoying flows from Norway’s sovereign wealth fund are Indonesia (US$2.9 billion), India (US$2.1 billion), China (US$1.3 billion) and Philippines (US$0.6 billion).
“Although the fund may have cut its exposure to these 10 countries, GPFG can still buy into emerging market bonds if it wants to actively invest in this area.
However, the fund will be capped at five per cent of the fixed-income portfolio.
“Also, its decision does not affect the equities market. Hence, the fund’s exposure into our equities is US$1.56 billion.”
Besides that, AmBank Research saw that the fund’s present mandate for renewable investments is expected to double to US$14 billion, to be invested in unlisted renewable infrastructure projects like wind or solar farms – something long demanded by environmental groups.
“Though the new mandate represents only 1.3 per cent of the present value of the fund, it is a start that should be viewed as a sign of increasing exposure in the future,” it said.
“Thus, we foresee minimal impact on Malaysia.
“The fund’s exposure to our government bonds is US$ 1.96 billion or approximately RM8 billion. As at end-March 2019, total foreign holdings in our Malaysian Government Securities (MGS) was RM150.7 billion.
“Hence, the fund’s exposure is about 5.3 per cent. In the event the fund decides to withdraw all the RM8 billionl from the MGS holdings, it is expected to add about 0.6 per cent upward pressure on the Malaysian ringgit against the US dollar.”