KUALA LUMPUR: Research houses have lauded Bank Negara Malaysia’s latest monetary measures, saying they are expected to improve bond market liquidity, ease hedging activities and revive investors’ confidence.
“These are steps towards broadening and deepening the onshore financial markets, allowing investors to better manage rates and forex exposures. We believe investors’ confidence should gradually return,” said Maybank FX.
The central bank’s Financial Markets Committee late last week announced a number of initiatives to promote a fair and effective market, enhance transparency and market information.
All the initiatives will take effect on May 2 except for the enhancement to financial market infrastructure, which will be implemented on a gradual basis and is expected to be completed over a 12- to 18-month period.
With residents allowed to participate in short selling activities, it will enable a more effective avenue for the hedging of interest rate risk exposure as well as to generate more trading activities and liquidity in the secondary government bond market.
Eligible securities for short-selling transactions will also be expanded to include Malaysian Government Investment Issue (MGII) with an outstanding nominal amount of at least RM2 billion, on top of Malaysian Government Securities (MGS).
Registered non-bank entities (including institutional investors, companies) will be allowed to hedge up to 100 per cent of their underlying assets and manage an additional 25 per cent of forex exposures.
This, Maybank FX noted, allows registered investors to fully hedge and actively manage their FX exposures including unwinding of hedging positions unlike previously when the flexibility to hedge without documentation is only applicable to 25 per cent of the ringgit assets (for non-resident investors) or foreign currency assets (for resident investors).
UOB Bank economist Julia Goh commented that the key measures that look most constructive are enabling the participation in short-selling activities and expanding hedging flexibility to allow registered non-banks to hedge up to 100 per cent.
“We are positive on these measures which would aid sentiment on the local bond and currency market since the tightening of measures in December last year.”
The dollar-ringgit pair is now showing signs of drifting lower.
UOB Bank is reviewing its forecasts (4.50 by end the fourth quarter of 2017) with odds tilted to the downside, and that the key will be a convincing break below 4.40.
Maybank FX said the ringgit should be more stable now with the solid underlying fundamentals and policies, backed by domestic demand and re-calibrated supportive budget (on a lower oil price assumption suggests flexibility in the fiscal space).
It expects the dollar-ringgit pair to remain in the range of 4.30-4.40.