KUALA LUMPUR (Jan 21): The slump in oil prices is coming at a bad time for Malaysian bonds.

The 30 percent slide in crude from last year’s high is heaping further pressure on the budget deficit of the oil exporter and deterring investors from buying its sovereign debt.

The importance of oil has increased since Prime Minister Mahathir Mohamad scrapped a goods and services tax last June, with the commodity expected to account for 31 percent of government revenue this year, almost double the proportion of 2017. Overseas investors have been getting skittish, reducing their holdings of the nation’s bonds by $5 billion last year.

“Given the oil-related vulnerabilities in Malaysia, we believe there are better opportunities elsewhere in the region,” said Prashant Singh, a senior portfolio manager for emerging-market debt in Singapore at Neuberger Berman, which oversees
$304 billion. “Should the oil price drop significantly from these levels, then a more cautious view would be warranted.”

While Malaysia’s bonds appear to be growing riskier, other emerging-market debt in the region is looking more attractive.

Signs the Federal Reserve is nearing the end of its rate hike cycle is reviving interest in the sovereign securities of higher-yielding countries such as Indonesia and the Philippines, who also benefit from lower oil prices.

Malaysia’s benchmark 10-year bond yield will climb to 4.30 percent by the end of December, according to the median forecast in a Bloomberg survey. The yield ended last week at 4.07 percent.

Still, the nation’s debt has at least one ally: Bank Negara Malaysia and its accommodative monetary policy stance. The central bank has kept interest rates unchanged for its past five meetings, and is forecast to remain on hold when it meets
Thursday with inflation hovering just above zero percent.

“The outlook for the overnight policy rate is stable, and biased toward the downside as inflation remains muted and growth slows,” said Bryan Carter, head of emerging-market debt in London at BNP Paribas Asset Management, which oversees the
equivalent of $470 billion. “We are overall quite bullish on local government bonds and will be looking for opportunities to enter.”

Below are key Asian economic data and events due:

* Monday, Jan. 21: China retail sales, industrial output and GDP, Bank of Japan bond purchases, South Korea 20-year bond sale, Thailand customs trade balance

* Tuesday, Jan. 22: South Korea GDP, Philippine 20-year bond sale, Japan auction for enhanced liquidity, Malaysia foreign reserves

* Wednesday, Jan. 23: BOJ policy decision, New Zealand CPI, Japan trade balance, Malaysia CPI, Singapore inflation

* Thursday, Jan. 24: Japan portfolio flows and 20-year sale, Australia employment, Japan Nikkei manufacturing PMI, Philippine GDP, Malaysia and South Korea policy review

* Friday, Jan. 25: BOJ bond purchases, Thailand foreign reserves