Published on 20 Dec 2019.
After three consecutive months of muted foreign flows, November saw a large wave of foreign bond investor interest in the Malaysian market. Total foreign holdings spiked RM8.0 bil in November 2019, marking the largest monthly net foreign inflow since September 2017. This raised the rate of foreign participation to its highest level since November 2018, as foreign holdings constituted 13.2% of total bonds outstanding in November 2019 (October: 12.6%). “The spurt in foreign purchasing of Malaysian bonds was rather surprising given the US Federal Reserve’s less dovish stance during its monetary policy meeting on 30 October 2019, while also signalling a pause in rate movements,” notes Kristina Fong, RAM’s Head of Research. This shift in interest rate expectation, which had supported a continued uptrend in US Treasury yields through November, should have dampened investor incentive to hunt for higher-yielding securities in emerging markets like Malaysia.
Government bond issuance came up to RM10.7 bil in November, an uptick from an already strong MGS and GII issuance of RM9.0 bil in October. This brought total issuance to RM112.7 bil in 11M 2019, still on track towards meeting our forecast of RM110 bil-RM120 bil for the year. Going forward, we expect MGS/GII issuance to expand to RM115 bil-RM125 bil in 2020, taking into account the Government’s deficit financing requirements pursuant to the recent tabling of Budget 2020 as well as the refinancing of maturing debts next year.
Corporate bond issuance was fairly robust at RM8.5 bil in November, up from RM5.9 bil in the preceding month. In view of the healthy pace throughout this year, corporate issuance had topped our RM110 bil-RM120 bil forecast for 2019. Total corporate issuance in 11M 2019 came in at RM120.6 bil. Moving ahead, we expect corporate bond issuance momentum to remain steady in 2020 on the back of a still healthy issuance pipeline, continued infrastructure financing needs next year and relatively attractive financing rates. As such, total corporate bond issuance is estimated to amount to RM100 bil-RM110 bil next year.
Woon Khai Jhek, CFA
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