Bank Negara: Norway fund’s move won’t have big impact on Malaysia
KUALA LUMPUR: Malaysia will not face significant impact from the Norwegian sovereign wealth fund’s decision to drop emerging market bonds from the benchmark index it tracks, says Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus.
She said this was because the country had a big pool of local institutional investors.
“If you look at the annual report and all, we have shown that even if there were periods of significant outflows, our bond yields did not move as much as what other countries might experience when they suffered the same kind of outflows.
“That is because we have a strong pool of domestic institutional investors,” she said at a press conference on Malaysia’s first-quarter gross domestic product (GDP) performance, here, yesterday.
Despite Norway’s Government Pension Fund Global’s decision, Nor Shamsiah said Malaysia’s bond yield had sustained at the same level as at the beginning of this year.
“Bond yields did increase due to the outflow, but recently it had declined again to the level that we saw at the beginning of the year. This is the feature of the bond market, it would have inflows and outflows.
“More importantly, we are here to ensure any flows and movement in the ringgit exchange rate is orderly and do not disrupt the financial market or economic activities,” she added.
On April 5, the Norwegian sovereign wealth fund, the world’s largest, said it would streamline its US$300 billion (RM1.25 trillion) fixed-income portfolio by dropping emerging market bonds from the FTSE World Government Bond Index.
Government and corporate bonds totalling US$17 billion as at the end of last year would be affected by the move.
The bonds are issuances by 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).
Earlier, Nor Shamsiah said Malaysia recorded outflows of RM7.1 billion last month due to a number of external developments, among which is the Government Pension Fund Global’s announcement.
“This is a normal feature of investing in financial assets. There are investors that are taking the shorter-term position and those that take a longer-term position,” she said.
Net inflow in the first quarter of this year stood at RM2.1 billion.
Meanwhile, Bank Negara yesterday announced additional initiatives to enhance market liquidity and accessibility.
They include enhancements to repurchase agreement (repo) market liquidity and flexibility, physical delivery for Malaysian Government Securities futures, expansion of dynamic hedging programme to include trust banks and global custodians, simplified foreign exchange transaction and documentation process, and ringgit liquidity beyond local trading hours.