KUALA LUMPUR: FTSE Russell has decided to remove Malaysia from a watchlist of possible exclusion and retain it in the World Government Bond Index (WGBI).
FTSE Russell noted Malaysia's recent market enhancements including improving secondary market bond liquidity and enhancing the foreign exchange market structure and liquidity.
The validation removed an uncertainty that had been hanging over the nation's debt markets, with analysts estimating that billions of dollars of investments were in the balance, according to Bloomberg.
Analysts said the removal means that Malaysia was no longer under threat of potential downgrade in FTSE Russell's Market Accessibility from Level 2 to 1.
"This suggests that FTSE Russell is satisfied with the slew of reforms undertaken by Bank Negara Malaysia during the past two years to deepen the onshore markets," Kenanga Research said in a report today.
Citing an example, the firm said Bank Negara had this month revised the rule to allow non-resident banks to trade ringgit interest rate swaps without any underlying positions.
This is in addition to measures implemented last year to boost liquidity such as increase availability of off-the-run bonds to be borrowed via repo for market making, among others.
"This event is positive from the perspective of equities as increased inflows of foreign interest in ringgit bond market increases liquidity and reduces the yields and hence risk-free rate.
"The risk-free rate that we used in valuing the equity market is 3.30 per cent with some downside bias now given an expected surge in demand," Kenanga Research said.