Analysts positive on MGS outlook
KUCHING: Standard Chartered Bank’s analysts (Standard Chartered) are positive on the Malaysian government bonds (MGS) given the ringgit’s recent outperformance and prolonged rate hike pause by Bank Negara Malaysia (BNM).
In a report, it highlighted that the ringgit’s outperformance and prolonged BNM pause as well as favourable supply dynamics are expected to support the MGS.
“Malaysia’s government is actively encouraging government-linked companies and local corporates to repatriate, convert and hedge foreign assets and income; this is positive for the ringgit.
“The recent back-up in threeyear (3Y) MGS yields may be partly due to the repricing of Fed rate cuts in 2024.
“We think that Fed rate-cut pricing of circa 65 to 70bps may be toppish given that the dots continue to suggest 75bps of cuts this year, even though cuts may be delayed to June. The spread between the 3Y MGS yield and the overnight policy rate (OPR) also appears fair,” it explained.
It also expected a prolonged pause by BNM in 2024.
“The central bank is likely to look past any one-off rise in inflation due to administrative tax hikes and subsidy rationalisation. We also do not expect BMM to hike rates to support the ringgit,” it said.
Aside from that, the 2024 auction calendar shows slightly longer supply duration, with one fewer 3Y auction and one more 15Y auction.
“Demand for the short end also remains supported by local banking books,” it added.
Overall, Standard Chartered said it has a positive mediumterm outlook on the ringgit.
“We expect Malaysia’s commodity and electronics trade surpluses to improve, while high FCY deposits onshore should provide a positioning boost once markets get clarity on Fed policy easing.
“We forecast US dollarringgit at 4.66 at end-2Q and 4.58 at end-2024,” it added.