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Malaysian bond market expected to grow in 2013

December 17, 2012

By John Gilbert

KUALA LUMPUR: The Malaysian bond market is expected to grow between 4.5% and 5% despite the current turmoil in Europe and uncertain prospects in the global economy, according to Hwang Invesment Management Bhd (HwangIM).

HwangIM is still constructive about the country’s bond market and the Malaysia Government Securities (MGS) is still one of the higher yielding sovereign bonds in the region, trading at 3.5% yield for the 10-year MGS.

“Foreign investors hold 40% of the MGS and it is the driving influence for the bond market,” its head of fixed income Esther Teo Keet Ying told reporters here last Friday.

“The coming elections, the appreciation of the ringgit against the US dollar and reforms in subsidies are among the influences that will continue to see more inflows of foreign investors into the Malaysian bond market.”

The bond market has a record year in bond issuances, with funds raised totalling RM100 billion up to end-September 2012, surpassing 2011’s record total issuances of RM70 billion, according to statistics from the Securities Commission (SC).

The issuance of PLUS Bhd’s RM30 billion sukuk at the beginning of the year marked a “significant milestone” as it represented the single largest sukuk issuance globally, according to SC chairman  Ranjit Ajit Singh in a speech at a capital markets conference in October.

As at end-September 2012, he said the total amount of bonds outstanding stood at close to RM980 billion, compared to RM841 billion as at the end of last year.

Malaysia is today the third largest local currency bond market in Asia, he added. On Asia, Teo said despite the strong rally this year, Asian bonds are expected to continue to do well on the back of strong inflows into emerging-market (EM) bonds and attractive valuations relative to the US and Europe.

“Fund inflows into EM bond and Asian bond markets will remain strong in the first-quarter of 2013, given Asia still trades at a premium to US and Europe credit.

“The current inflows have been driven by the growing Asia-based investors’ higher EM and Asia allocation as well as Asian private banks,” she said.

Teo said the factors that will lead to a reversal or a fall of inflows would be if investors rotate to other EM bond markets such as Latin America and Eastern Europe, or if there is a risk-off environment which usually leads to flight to safety, back to developed markets.

Teo highlighted that the Asian bond market will continue to grow rapidly as the participation from global investors have increased tremendously throughout 2012 and the market is expected to be flushed with liquidity, providing investors with a wider variety of investment opportunities.

This content is provided by FMT content partner The Malaysian Reserve.


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