Ringgit’s depreciation will encourage more bond investors
KUALA LUMPUR: The ringgit’s depreciation might encourage new investors in the bond market, says Malaysia University of Science and Technology (MUST), Dean of Business, Dr Yeah Kim Leng.
He said new investors should grab the temporary opportunity in the weaker ringgit environment as it offered a cheap entrance point to the bond market.
“Malaysia just needs to ensure it has the credible policy.
Maintaining and consistencies in policies, are key, because investors want a predictable environment,” said Dr Yeah after the Asian DevelopmentBank(ADB)presented its latest Asia Bond Monitor (ABM) report.
The report said despite market volatility due to rising global concerns, the first quarter of 2015 saw the local bond market, in emerging East Asia, continuing to expand.
Dr Yeah said investors should view the current weaknesses in the ringgit as temporary, a cyclical phenomenon.
“If they come in now, in the longerterm they can expect the ringgit to strengthen, and the strengthening of ringgit will add to their returns.
“I think it’s all boils down to confidence.
“New financial investors will come in if the government is able to convince foreign investors of the country’s economic stability to sustain its current growth path enrouvte to achieve high level growth we envisage,” he said.
In term of a growing economy, it means that companies and industries are profitable and sustainable, said Dr Yeah.
“The real economy has to perform well to reward the financial investors,” he said.
Meanwhile, the interest rate differential between investing in Malaysia versus investing in US or Europe, was still fairly large, said Dr Yeah, pointing to the current and old investor, or those bond investors that entered earlier.
“There is still two over per centage points differences in the yield, so there is still a buffer in the event of so-called eroded returns,” he said.
When the exchange rate differentiates, the buffer still protects, still enabling positive returns to the current investors, he said.
“So it not as bad, as it is not a negative returns environment (for Malaysia).
“Current investors should stay and take a view that the current weaknesses(ofringgit)istemporary, as from fundamental perspective, the ringgit is undervalue.
The main consideration, should be still on the long-term prospects of the economy, he added. — Bernama