Foreign bond flows post RM5.2b decline


Foreign bond flows have reversed in November to RM5.2 billion despite the RM7.8 billion inflows in October on the back of a few developments during the month.

RAM Rating Services Sdn Bhd research head Kristina Fong said the scales would be tipped towards even bigger outflow pressure, if it was not for some portfolio rebalancing.

“Lingering global uncertainties over the US-China trade spat and Brexit outcome still take centre stage, fuelling global risk aversion,” she said in a statement.

The Budget 2019 tabling early November pointed to a wider than projected fiscal deficit of 3.7% of GDP this year, and 3.4% the next.

She said this is raising concerns about how the “Big 3” rating agencies will react to the development.

“That said, there may be some respite from fiscal concerns in December as Moody’s Investors Service had reaffirmed Malaysia’s A3 sovereign rating and maintained its ‘Stable’ outlook earlier in the month,” she said.

“Foreign holdings also declined throughout November due to the positioning in the lead-up to the US Federal Reserve’s (Fed) continued tightening in December, the ringgit’s weakness relative to its regional peers and Malaysia’s more subdued GDP growth of 4.4% in the third quarter of 2018,” she added.

Previously, it was reported that the bond market posted a RM3 billion foreign outflow in September on the back of external factors, such as the US-China trade dispute, as well as the Fed lifting its funds rate.

It was also reported that Fong expects Bank Negara Malaysia to maintain the Overnight Policy Rate in the foreseeable future, while uncertainties cloud both domestic and external growth prospects.

Meanwhile, Fong added that the company projects gross corporate issuance to moderate between RM70 billion and RM80 billion next year following a clear moderation in infrastructure-related debt securities issuance.

“We expect this trend to continue as the government maintains its stance on rationalising the country’s debts through more stringent management of project costs and timelines. As such, we envisage gross corporate issuance to moderate to RM70 billion to RM80 billion in 2019,” she said.

On the other hand, she added that the total gross corporate issuance for 2018 is more than likely to surpass the rating company’s RM100 billion forecast.

“As at end-November, this number had almost reached the upper limit of our projection, while the lower limit stands at RM90 billion, following an additional RM8.8 billion of corporate issuance that brought year-to-date issuance to RM99.5 billion.”

She said one of the clear trends in the post-general election era is that quasi-government debt papers will no longer be able to prop up corporate bond issuance next year.