||Asean Affairs 5 June 2013
Malaysian bonds beat peers after Barisan win
KUALA LUMPUR: Malaysian bonds outperformed regional counterparts in May after Barisan Nasional under Prime Minister Datuk Seri Najib Tun Razak's election victory removed the risk of a power shift, prompting analysts to maintain forecasts for appreciation in the ringgit this year.
Government securities gained an average 0.3%, while local-currency notes in Singapore and Indonesia slumped 2.4%, according to HSBC Holdings Plc indexes. Thai debt handed investors almost zero returns and Philippine bonds fell 0.8%.
The ringgit will advance 3.9% by Dec 31, ending the year stronger than three per dollar for the first time since 1996, the median estimate of 23 analysts shows.
Overseas investors boosted holdings of Malaysian bonds to a record as 10-year yields offer a 1.3 percentage-point premium over US Treasuries and 2.5 points more than Japanese notes. The ringgit rallied to a 21-month high on May 7, two days after the re-election of Najib's government, which has embarked on a decade-long US$444bil (RM1.35 trillion) programme to help achieve developed-nation status by 2020. Foreign-exchange reserves have climbed to the highest since at least 1998.
“Malaysia has a good macro profile and strong fiscal position, and foreign investors seeking yield find government bonds in Malaysia attractive,” Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong, said in a May 22 interview. “Especially now that the uncertainty about the elections is behind us, investors don't need to hold back any more.”
Emerging market local-currency bond funds drew net inflows of US$265mil in the week to May 29, according to a Morgan Stanley report on May 30, citing data from US research firm EPFR Global. Hard-currency debt funds saw outflows of US$535mil.
Overseas investors increased ownership of Malaysian government and corporate securities to RM236.8bil in April, central bank data shows.
The ringgit will appreciate to 2.98 per dollar by year-end from 3.0953 in Kuala Lumpur late on May 31, according to the analysts surveyed by Bloomberg. Barclays Bank Plc predicted in a May 28 research report that the currency will strengthen to 2.90 in 12 months, bolstered by capital inflows.
Najib's Barisan Nasional won the May 5 election after securing 60% of the 222 parliamentary seats, extending a 55-year grip on power for the coalition.
“Malaysia, due to the election concern, had lagged gains in other emerging-market debt and so had a catch-up rally after the vote,” Hideo Shimomura, who helps oversee the equivalent of US$59bil in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co, a unit of Japan's largest publicly traded bank, said in a May 31 interview.
Malaysia's currency dropped in May along with other Asian exchange rates and bonds after Federal Reserve chairman Ben S. Bernanke signaled stimulus measures that have fed inflows to developing nations may be decreased, while housing and consumer confidence data beat economists' forecasts.
The ringgit's weakness is likely to be short-lived as Malaysia's economic growth and sustained current-account surpluses provide support, according to Barclays's report, whose authors included foreign-exchange strategist Hamish Pepper.
The currency weakened 1.9%, faring better than a 3.2% loss in the Thai baht and a 2.8% drop in the Philippine peso, according to data compiled by Bloomberg.
Indonesia's rupiah declined 0.8% as the central bank intervened to temper losses last week.
The yield on Malaysia's 3.48% bonds due in March 2023 increased nine basis points, or 0.09 percentage point, to 3.46% in May, with much of the advance coming last week after Bernanke's comments.
The yield climbed 27 basis points in the five days and was the highest since April 4, data compiled by Bloomberg show.
It reached 3.05% on May 17, the lowest level for a benchmark of that maturity since 2009.
In contrast, the rate on the 3.58% 2018 notes rose 15 basis points to 3.35% last week. Bernama