‘Bond market will remain resilient despite FTSE Russell’s pullout risk’

KUALA LUMPUR: Credit rating agency RAM Rating Services Bhd expects the Malaysian bond market to remain resilient despite the risk of being removed from global index provider FTSE Russell’s World Government Bond Index (WGBI) due to concerns about market liquidity.

Head of data analytics Julie Ng said the expectation is based on strong corporate fundamentals, low foreign participation in the corporate bond market and ample liquidity in the market.

“Corporate fundamentals are still very strong in terms of their financial matrix and their ability to service the debt is still fairly reasonable and resilient.

“That is why, in spite of the FTSE Rusell index pullout risk, I don’t think it will affect the corporate debt that much,” she told Bernama on the sidelines of the RAM League Award and Conference 2019 here today.

She said foreign participation in the corporate bond market is only at the lower single digit.

“Even if all of them pull out, it will still not affect the corporate bond yield. In that sense, I think the corporate bond space is fine,” she said.

She said Malaysia also has ample liquidity in the market and capable local investors to step in if the foreigners decide to exit the corporate bond market.

“Investors like the Employees Provident Fund (EPF) and some of the insurance companies have big funds and enough buffer to step in and buy up the supply,” she said.

Meanwhile, Ng said bond issuance in Malaysia this year is expected to reach RM100 billion, underpinned by the decision to revive the East Coast Rail Link (ECRL) and Bandar Malaysia projects.

“Initially, our house view was actually lower at around RM70- RM80 billion because of the government rationalisation and project delays, such as the Light Rail Transit 3.

“So, we thought bond issuance might not be able to keep the same amount this year as last year.”

However, she said the revival of the ECRL and Bandar Malaysia projects could spur some demand for the construction companies.

She added that the bond market could receive a further boost if Bank Negara Malaysia were to cut the overnight policy rate (OPR) as it would encourage more issuers to come and lock in a cheaper rate of funding.

Last week, FTSE Russel announced that it would review Malaysia’s market accessibility level in its WGBI due to concerns about market liquidity.

Bond issuance in Malaysia last year stood at RM105 billion and the country’s bond market as a whole is worth RM1.4 trillion.