Bond market is expected to remain strong in 2018, amounting up to RM90b – RM100b, says RAM Ratings

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The bond market is expected to remain robust this year, with RM90 billion to RM100 billion of gross corporate bond issuance to take place, said RAM Rating Services Bhd (RAM Ratings) in a report by The Star on Jan 25, 2018.

“The strong corporate bond issuance is driven by a healthy pipeline of issuances from the financial institutions and infrastructure, as well as utility sectors which have traditionally issued the largest share of the market’s corporate bonds,” said RAM Ratings Services Bhd Head of Research Kristina Fong.

The latest RAM’s Bond Market Monthly stated that in 2017, the gross issuance of corporate bonds hit a record high of RM124.9 billion, surpassing its expectation of RM105 billion to RM115 billion.

“The robust issuance in 2017 was supported by both sub-segments of the corporate bond market – quasi-government and private, which posted double-digit year-over-year rates of 46.1 per cent and 45.6 per cent respectively,” it said.

The last time gross bond issuance reached a high level was in 2012, amounting to RM121.1 billion.

The rating services agency said that last year, total issuance of Malaysian Government Securities (MGS) and Government Investment Issues (GII) came in at RM113.9 billion, surpassing its projection of RM100 billion to RM110 billion.

MGS is a coupon-bearing, long-term bonds issued by government to raise funds for development expenditures, whilst GII is non-interest-bearing government securities based on Islamic principles issued by the government and placed on a competitive tender with maturities of three to 10 years.

“Taking into account of the government’s deficit financing needs and the RM62.8 billion of MGS and GII set to mature this year, we expect gross issuance of long-term government debt securities to sum up to RM100 billion to RM110 billion in 2018,” the statement said.

Overall, foreign holdings of Malaysian bonds posted a net outflow of RM8.0 billion in 2017, as opposed to a net inflow of RM825 million in 2016.

“The bulk of the outflow occurred in the first quarter, following Bank Negara Malaysia’s (BNM) curbing of offshore ringgit trading in November 2016, where foreign investors had subsequently wound down their positions in the Malaysian bond market by RM37.4 billion,” it said.

Although the trend reversed in second-quarter of 2017, after the announcement of BNM’s liberalisation initiatives on currency and interest-rate hedging mechanisms onshore, the cumulative inflow of RM29.4 billion in the last 3 quarters could not compensate the excessive knee-jerk reaction at the start of the year.

Moving forward, the statement said Malaysian bond market is expected to experience pressure from the outflow of foreign investors this year due to external global developments such as the relative pace and timing of future monetary policy tightening by the central bank of United States.

“Having said that, the brighter outlook for the ringgit which has so far maintained its uptrend against the greenback in January may offer some support to foreign investments,” it said.

Moreover, RAM also stated in the report that the market will remain vulnerable to geopolitical risk which is considered as a major driver of market uncertainties in 2018.

RAM Rating is a credit rating agency in Malaysia and South-East Asia (ASEAN), and a wholly owned subsidiary or RAM Holdings Bhd. Its credit ratings and assessments are highly regarded in both the domestic and regional markets and are used by investors and market participants to make sound decisions.

Its ultimate shareholders comprise major financial institutions in Malaysia, McGraw-Hill Asian Holdings (Singapore) Pte Ltd, as well as Fitch Ratings Limited.

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