KUALA LUMPUR: Despite some strengthening of the ringgit against the greenback in July, foreign holdings of Malaysian bonds experienced another month of net sell-offs, declining 1.2 per cent month-on-month to RM191.5 billion, as at end-July 2017, said RAM Ratings.
The credit rating agency, in a statement today, attributed the decline to a likely response to the expected further liquidity tightening amid the US Federal Reserve's (Fed) proposed asset reduction.
The proportion of “sticky” foreign investors, such as central banks, governments, pension funds and insurance companies improved to 55 per cent in the second quarter of 2017 compared with 44 per cent a year earlier and could help curtail the extent of market volatility, it added.
"Another supporting factor for foreign participation is the stabilisation of Malaysia’s weight in the JP Morgan Government Bond Index-Emerging Markets Global diversified index with the inclusion of a new government investment issue in the basket," it said.
Meanwhile, RAM Ratings said the issuance of government securities was ample at RM10 billion in July, but corporate bond issuance had waned.
"At RM2.8 billion, it was the second-lowest monthly gross issuance of corporate bonds, year-to-date, albeit, above January’s nadir of RM1.8 billion.
"We believe the cost of financing plays a part in the slower bond issuance, especially when the rush for issuance seemed to have slowed down after the recent rate hike in June.
"That said, year-to-date gross issuance of RM57.6 billion is still higher than the previous corresponding period’s RM47.3 billion," it added.
A striking theme in July was an overall pause in tightening monetary policy by global central banks, it added.
"Although the moves were already priced in, expectations on the relative pace and timing of future monetary policy tightening will fan market volatility throughout 2017.
"Emerging debt markets will bear most of the downside brunt, with a general shift towards risk aversion by portfolio investors amid lingering uncertainties over the extent of the Fed’s actions this year, following lower-than-expected inflation and a mixed growth performance," it said.
Domestically, it added that the delay in 1MDB’s payment to the International Petroleum Investment Company did not significantly affect the market. - Bernama