KUALA LUMPUR (Sept 25): Malaysia will be retained on the Watch List of the FTSE World Government Bond Index (WGBI), as of the September 2020 review, for possible reclassification from Market Accessibility Level 2 to 1.
In the classification published Sept 24, FTSE Russell acknowledged the additional initiatives instigated by Bank Negara Malaysia (BNM), over the last twelve months to improve the accessibility of the Malaysian government bond market for foreign investors.
It said market enhancements include, but are not limited to:
- Improving secondary market bond liquidity through further progress on the establish of a Debt Management Office, an improved Auction Calendar that offers more re-opening of prior issues, a greater number of Malaysian Government Securities (MGS) available via repo, consolidation of bond issuances to increase the outstanding size per issuance and reducing the number of issuances and, introducing MGS futures with physical delivery; and
- Enhancing the foreign exchange market structure through making permanent the Appointed Overseas Office (AOO) programme, allowing Japanese local custodian banks to undertake third party FX and dynamic hedging and streamlining the FX documentation and due diligence processes.
FTSE Russell said it will continue to engage with its advisory committees and other stakeholders, over the next six months, to determine the practical improvements that emanate from these important and welcomed initiatives, which should enhance the experience of international participants in the Malaysian fixed income market.
FTSE Russell said an accessibility level of 2 is required for a market to be considered eligible for inclusion in the FTSE World Government Bond Index (WGBI), while an accessibility level of 1 is required for a market to be considered for inclusion in the FTSE Emerging Markets Government Bond Index (EMGBI) Markets on the cusp of reclassification to a higher level following enhancements to market accessibility, or to a lower level in the event of a deterioration of investment conditions, are placed on a Watch List.
Meanwhile, FTSE Russell said that Chinese Government Bonds (CGB) will be included in the WGBI with inclusion scheduled to start with the October 2021 profiles.
It said the commencement date is subject to final affirmation in March 2021 from members of the FTSE Russell advisory committees and other index users that these recently announced reforms have made the anticipated practical improvements to the market structure.