PETALING JAYA: Malaysia’s exclusion from the FTSE Russell Watch List is positive as it eliminates market concerns over short-term fund outflows from this potential event, according to CGS-CIMB.
“The removal of Malaysia from FTSE Russell Watch List helps remove the risk of Malaysia’s potential removal from the FTSE World Government Bond Index (WGBI), which could exert upward pressure on bond yields and lead to a potential overhang on the ringgit. This could potentially, in turn, lead to short-term selling of foreign funds in the equity market and heightened volatility in the market,“ the research house said in a note yesterday.
Malaysia will be removed from the FTSE Russell Watch List for potential reclassification of its market accessibility level from “2” to “1” and will be retained in the WGBI.
FTSE Russell commended Bank of Negara Malaysia (BNM) on its previously implemented and ongoing initiatives to address the concerns of foreign investors when accessing the Malaysian government bond market. It noted that recent market enhancements include improving secondary market bond liquidity and enhancing the foreign exchange market structure and liquidity.
“FTSE Russell is grateful for the constructive engagement that has taken place with BNM and the number of positive initiatives that have been introduced over the last two years. FTSE Russell strongly encourages BNM to continue efforts to enhance the experience of international participants in the Malaysian fixed income market,“ FTSE Russell said in its FTSE Fixed Income Country Classification Announcement for March 2021.
“This is in line with our expectations. To pave the way for China’s inclusion in the WGBI, Malaysia’s weight in the index would be pared by 0.02% to 0.39%,“ commented UOB in a note yesterday.
Malaysia was placed on FTSE’s watch list in March 2019 for a potential exclusion. Since then, cumulative foreign flows into Malaysia’s government bonds totaled RM41.6 billion. Foreign holdings of Malaysia’s government bonds rose to 24.7% in February 2021, from 21.9% in April 2019. This suggests that Malaysia’s government bonds remain attractive and supported by stable macro fundamentals.
FTSE Russell said Chinese Government Bonds will be included in the WGBI over a period of 36 months commencing Oct 29, 2021.
