MALAYSIAN bonds continue to attract foreign investors despite the Fitch Ratings’ downgrading of the country’s rating last Friday (Dec 4).
Although there was mild sell-off of both the Malaysian ringgit and longer-dated Government bonds yesterday, UOB Global Economics & Markets Research attributed this to an expected knee-jerk reaction which is temporary in nature.
“(The) underlying sentiment is firm amid better domestic growth outlook for next year, sustained low interest rates, mild bond supply concerns next year and expectations of broad dollar weakness,” senior economist Julia Goh pointed out.
“And we reiterate our view for USD/MYR to ease to RM4.00 by end-2Q 2021 and RM3.95 by end-4Q 2021.”
The upcoming key domestic events to watch are S&P Global Ratings and Moody’s Investors Service next review on Malaysia’s credit rating as well as the FTSE Russell’s next review of Malaysia’s World Government Bond Index (WGBI) weight next March, according to Goh.
Last week, Fitch Ratings downgraded Malaysia’s long-term foreign-currency issuer default rating (IDR) to ‘BBB+’ from ‘A-’ with a stable outlook on grounds that the COVID-19 crisis has weakened Malaysia’s key credit metrics.
Recently, Bank Negara Malaysia (BNM) announced that its foreign reserves rose to a two-and-a-half-year high of US$105.3 bil as of November from US$104.6 bil the previous month.
UOB said foreigners continue to snap up Malaysian debt securities by RM1.9 bil last month which marks seventh month of net foreign inflows into the domestic bonds market.
“It will help offset continued outflows from Malaysian equities (at RM1.1 bil in November),” opined Goh.
On BNM’s reserves, UOB noted that the latest reserves figure is sufficient to finance 8.6 months of retained imports and is 1.2 times total of our short-term external debt. – Dec 8, 2020.
