KUALA LUMPUR (Jan 25): Malaysia’s bond market is set to experience pressure from the outflow of foreign investors this year, according to RAM Ratings.

In the latest edition of RAM Ratings’ Bond Market Monthly, the rating agency said foreign holdings of Malaysian bonds in 2017 posted a net outflow of RM8 billion as opposed to a net inflow of RM825 million in 2016.

It explained this was due to a knee-jerk reaction which followed Bank Negara Malaysia’s (BNM) curbing of offshore ringgit trading in November 2016. 

RAM Ratings noted impact was not reversible by the central bank’s follow-up liberalisation initiatives on currency and interest-rate hedging mechanisms onshore.

“Although the trend reversed in the second quarter of 2017, 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,” the monthly read.

Going forward, the Malaysian bond market is anticipated to experience pressure from the outflow of foreign investors this year, determined by external global developments such as the relative pace and timing of future monetary policy tightening by the US Federal Reserve.

“The market remains vulnerable to geopolitical risk, a major driver of market uncertainties in 2018,” RAM Ratings cautioned.

That said, the brighter outlook for the ringgit against the greenback in January — which has so far maintained its uptrend against the greenback in January, having appreciated more than 3% since end-December 2017 — may offer some support to foreign investments, the rating agency added.

Meanwhile, it said Malaysia’s gross corporate bonds issuance hit a record high of RM124.9 billion in 2017, supported by double digit year-on-year growth in the quasi-government and private sub-segments.

The last time gross issuance reached such lofty level was in 2012 at RM121.1 billion.

RAM Ratings said the 2017 full year figure surpassed its expectation of RM105 billion to RM115 billion, as the quasi-government and private sub-segments posted strong growth rates of 46.1% and 45.6% respectively.

This year, the bond market is expected to “remain robust” with RM90 billion-RM100 billion of gross corporate bond issuance, as observed by the rating agency.

“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,” said RAM’s Head of Research, Kristina Fong.

Last year, total issuance of Malaysian government securities (MGS) and government investment issues (GII) beat expectations at RM113.9 billion.

The rating agency expects gross issuance of long-term government debt securities to sump up to RM100 billion to RM110 billion in 2018, after taking into account the government’s deficit financing needs and the RM62.8 billion of MGS and GII set to mature this year.