Foreign bond outflows ‘markedly’ declined in June — RAM

This article first appeared in The Edge Financial Daily, on July 19, 2018.
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KUALA LUMPUR: Foreign bond holdings continued the downtrend in June, resulting in a RM6.7 billion net outflow, but it was “markedly” lower than the net outflow of RM12.9 billion in May this year, says RAM Rating Services Bhd.

In a statement yesterday, the rating agency said as at end-June, foreign holdings stood at RM185.8 billion, equivalent to a 3.5% month-on-month decline.

RAM head of research Kristina Fong said while the market appeared to be less jittery, tightening global liquidity and heightened trade tensions continue to threaten trade and growth prospects.

“Although the market appears less jittery now than immediately after the 14th general election (GE14) in May, market participants still have to contend with tightening global liquidity and heightened trade tensions, which threaten trade and growth prospects,” she said.

Most recently, RAM said the global markets have become even more volatile amid mounting uncertainty over the possibility of a “clean” Brexit as political tensions escalate in the UK.

In Malaysia, RAM expects tendered government bonds have attracted better take-up rates, as evidenced by solid bid-to-cover ratios amid strong support from local investors.

In first half of this year (1H18), RAM said the supply of Malaysian Government Securities and Government Investment Issues came up to RM62.7 billion. It projects 2018 gross issuance to be up to RM110 billion, supported by the government’s commitment to maintaining a budget deficit of 2.8% of gross domestic product for the year.

In June, RAM said corporate bond issuance moderated to RM6.8 billion, lower than the preceding five months’ average of RM9.8 billion.

Meanwhile, for corporate bond issuance, RAM said it edged up 1.6% year-on-year to RM55.7 billion in 1H18.

“We expect the pace to moderate through the rest of the year, in particular for infrastructure-related and quasi-government entities as the government takes stock of its contingent liabilities,” it said.

That said, RAM is maintaining its gross corporate bond issuance projection of RM90 billion to RM100 billion for 2018, on account of the front-loading of issuances before GE14 and a potentially slower pace in 2H18.