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Ratings Upgrade Will Increase Foreign MGS Holdings

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KUALA LUMPUR: Fitch Ratings’ upgraded sovereign rating outlook to “stable” will likely increase the foreign holdings of Malaysian
Government Securities (MGS), said Standard Chartered.

In a note, the bank said foreign ownership of MGS was around 47 per cent (US$43 billion) of total outstanding (US$92 billion), of which 25 per cent were foreign central banks, sovereign wealth funds and other types of investors.

Furthermore, it said, the majority of foreign holdings were global emerging markets-dedicated bond funds and recent data showed that foreign sentiment had improved.

Foreign holdings remained stable and emerging markets bond funds continued to reduce their underweight positions, it said.

“The latest data shows that 75 per cent of foreign investors in MGS are benchmark index bond funds as of end-May. Fitch’s decision is likely to enhance the stability of foreign holdings.

“Depending on investors’ mandates, some can only invest in ‘A’-rated instruments and given the sovereign rating by Fitch remains unchanged at ‘A-‘, the risk of outflows has reduced significantly,” it said.

Expectations of a Fitch downgrade affected the ringgit and its assets, especially amid external market volatility, however, it expected the ringgit to trade around 3.60 against the greenback by mid-2016.

Standard Chartered said Malaysia had made significant strides in consolidating its fiscal deficit by undertaking subsidy rationalisation
measures and introducing a Goods and Services Tax.

“While lower commodity prices will likely affect Malaysia negatively, the country has had better growth than most oil-producing economies due to its structural shift from an export-oriented economy to one supported by domestic demand.

“We view this shift positively and are therefore not concerned about the  narrowing savings-investment gap. We expect Malaysia to register still-strong, above-peer average Gross Domestic Product growth of five per cent in 2015,” it added.–BERNAMA

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