KUALA LUMPUR: 1Malaysia Development Bhd’s (1MDB) debt issue is short-term in nature and unlikely to dent investors’ confidence in the local economy and stock market, says a renowned fund manager.
Templeton Emerging Markets Group executive chairman Mark Mobius also said Malaysia’s bond performance and balance of payment are still sound.
“News on 1MDB are mostly short- term in nature and won’t have a long-term impact on the economy. In fact, this won’t affect investors’ confidence as this is a single company.
“The Malaysian bond performance and balance of payment are still in very good shape and this is what investors are looking for,” he said at the Global Islamic Finance Forum 5.0 (GIFF 5.0), here, yesterday.
Newly-appointed Bank Negara Malaysia governor Datuk Muhammad Ibrahim, meanwhile, said the government will meet its debt obligations.
“The resolution of 1MDB (issue) will improve market sentiment,” he said on the sidelines of GIFF 5.0.
Muhammad was asked about concerns over Malaysia’s sovereign ratings.
Standard & Poor’s (S&P) said it did not consider a contractual dispute and termination of a bilateral agreement between governments and their entities as sovereign default.
The rating agency also did not expect 1MDB to represent a large contingent liability to the government.
“Our sovereign ratings refer to the sovereign’s ability and willingness to service financial obligations to non-official creditors,” it said in a statement.
S&P noted that the government is reluctant to extend its support for debt beyond the level that it has explicitly guaranteed or extended in the letter of support (a total of RM1.72 billion or 1.4 per cent of gross domestic product).
“We do not consider these amounts to be material to the government’s balance sheet,” it added.
Elaborating on his optimism on Malaysia, Mobius said the country is one of the strongest representations within Templeton’s emerging markets portfolio.
“In fact, it contributes some US$300 million (RM1.2 billion) in equities. That’s a strong number,” he told Business Times.
“We expect it to continue being one of the strongest despite all the volatility and political noises.”
Mobius said as a general rule, he always avoids investing in companies with shoddy corporate governance and which are not transparent.
“However, I am open to all sectors as there are always pockets of opportunities to tap into.”
Mobius, who has consistently said the ringgit is undervalued against the US dollar, acknowledged that much of it comes from the perception that Malaysia is very much an oil and gas (O&G) and commodity-driven economy.
“The destiny for Malaysia, at least in my opinion, is that it will be a mixed economy. The service industry currently represents some 60 per cent of the economy; this will continue while also catering to tourism, retailing and other kind of services.
“That being said, Malaysia will still continue to be a big producer of palm oil and O&G,” he added.
Franklin Templeton has US$1.5 billion in syariah-compliant asset under management, with sukuk representing the lion’s share at US$1.3 billion.