KUALA LUMPUR: Foreigners are not expected to embark on a
massive selldown of Malaysian debt papers.
According to the Securities Commission (SC), the stability
of foreign ownership levels in the local bond market is backed by the fact that
the majority of investors are long-term holders.
In addition, the capital market regulator said Malaysia’s
sound economic fundamentals and domestic liquidity would mitigate the impact of
fund outflows that could happen in tandem with the overall performance of
global emerging market bonds due to external factors.
As at the end of December 2016, foreign ownership accounted
for 18.4% of total bonds outstanding, down from 19.1% in the preceding year.
Foreign ownership of Malaysian Government Securities (MGS), on the other hand,
remained relatively stable at 47.1% of total MGS outstanding as at end-December
2016, compared with 47.7% in the preceding year.
SC chairman Tan Sri Ranjit Ajit Singh said he did not
believe foreign ownership of Malaysian debt papers would fall dramatically even
in the face of major uncertainties, given the quality and strength of the
Malaysian bond market, as well as its significance in the global emerging
market bond index.
“The Malaysian bond is a significant component of the global
emerging market bond index. When you look at emerging markets, there aren’t too
many that have a bond market as developed as Malaysia’s.
“So, those who are looking for fixed-income exposure within
the emerging market asset class will naturally look to Malaysia, and we think
we will continue to appeal, given our economic fundamentals and comprehensive
market eco-system,” Ranjit said.
“In the face of major uncertainties, we think investors will
still differentiate between emerging markets and differentiate them on the
basis of the quality of regulation and market eco-system, as well as the
economic fundamentals,” he said at a briefing during the launch of the SC’s
Annual Report 2016.
According to the SC, fundraising through Malaysia’s capital
market will likely accelerate this year amid a “cautious optimistic” outlook on
the economy.
It estimates the total capital raising this year through
primary and secondary offerings of bonds and equities to hit between RM102bil
and RM105bil. The figure last year was RM98.5bil.
The increase in capital raising is driven by a pipeline of
initial public offerings (IPOs) in 2017.
The SC expects between RM7bil and RM9bil to be raised from
IPOs this year, compared with a mere RM1bil last year.
Ranjit explained that large IPOs tend to skew the value
raised from listings, and that, in turn, is subject to market forces.
This year, Eco World International Bhd alone will raise
RM2.58bil from its planned listing on April 3.
The SC also projects that the secondary equity market will
see between RM10bil and RM11bil being raised.
As for the bond market, the SC expects RM85bil to be raised
from corporate bonds and sukuk, similar to the RM85.7bil achieved in 2016.
“While uncertainties caused by global political and monetary
conditions will continue to influence markets globally, the general outlook for
the Malaysian capital market reflects increased optimism, which is underpinned
by sustained GDP (gross domestic product) growth expectations domestically and
renewed interest in emerging markets,” Ranjit said.
“We also believe that increased investments, including from
large infrastructure projects, and refinancing will further drive fundraising
through the sukuk and bond market,” he added.
As for the equity market, Ranjit noted that the improvement
in market sentiment would be the impetus for companies to tap both the primary
and secondary equity markets to raise funds, as they gain the confidence to
make investments.
“The overall outlook for the Malaysian capital market is
positive, with higher levels of growth expected across key market segments.
This is underpinned by higher levels of corporate activity within a backdrop of
sound economic fundamentals in place to support consistent growth outlook,” the
SC said in its 2016 Annual Report.
The SC expects the equity market to attract some foreign
inflows, while the bond market will likely see some outflows on continued
external uncertainties.
“Against prevailing global uncertainties, the low beta
nature of the capital market, coupled with better dividend yields relative to
regional peers, represents an attractive portfolio diversification
opportunity,” the SC said.
“Foreign shareholding in the equity market is at present in
line with its long-term averages, with expectations of some inflows, assuming
clarity in the global policy environment and an improvement in emerging market
interest on the part of global investors,” it added.
According to the SC, the current level of the ringgit,
widely perceived to be undervalued, would present an opportune time for foreign
investment in the domestic equity market.
The SC noted that the equity market would likely see
earnings growth regain momentum this year in line with the rollout of more
infrastructure projects, better economic fundamentals and improving liquefied
natural gas prices in tandem with higher crude oil prices.
In particular, it said, market consensus was positive for
the oil and gas, plantation and construction sectors.