Affin Hwang: EPF’s return to boost Malaysian bond market

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KUALA LUMPUR (Jan 26): The domestic bond market should be more bullish this year as the Employees Provident Fund (EPF) is back in the picture, said senior director of fixed income at Affin Hwang Asset Management Bhd (Affin Hwang AM) Esther Teo.

“But it’s not easy as we are facing rising interest rates around the world as well as in Malaysia.

“…and therefore, at least in the first half of the year, we are still reckless,” she said during the Affin Hwang AM Investing Roundtable: 2022 Market Outlook virtual roundtable on Tuesday, January 25.

She said the domestic bond market is highly institutionalized, with 90% of bond trading in Malaysia driven by pension funds, insurance companies, asset managers and the EPF, which is one of the major players. and space investors.

“And we’ve seen a lot of ETH withdrawals and therefore they’re keeping that buffer to deal with those buyouts.

“Last year we saw local national bonds go through a tough time…they haven’t had a negative year for many years. And last year was the first year the bond market in ringgits recorded negative returns of 1% to 2%,” she added.

Teo said bond yields have been extremely low over the past few years and now Affin Hwang AM sees the reversal as a transition year.

“But I think in the second half of the year and into 2023, portfolio yields and bond yields will be much more attractive to investors,” she added.

Meanwhile, commenting on the ratings outlook given that Malaysia’s sovereign credit rating has deteriorated since 2020, she said there would be no downgrade in Malaysia’s rating over the two next few years if the government could properly manage the country’s finances and fiscal situation.

“Due to the pandemic, many governments need fiscal stimulus to help the economy recover.

“A lot of these rating agencies are giving time and looking at the medium-term outlook,” she said.

Teo said Malaysia is still a single A-rated country and local bond yields are still relatively attractive.

“For example, our 10-year Malaysian Government Securities (MGS) are trading today at 3.7%, and if you compare that to other single-A countries like South Korea, or even a BBB country like Thailand, you know, 10- annual bond yields in those countries get you less than 2%.

“So I think our bond market yield is still relatively high and even though we face a one-notch downgrade to BBB+, we don’t think the impact on bonds will be that big,” a- she declared.

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