Asia Fixed Income: Weakening Ringgit Triggered Bond Outflow

Malaysian ringgit continued the plunge and hit a 17-year low.  The offshore holding of Malaysia local government debt also fell with the heightening FX volatility and declining FX reserves.  The S&P Malaysia Bond Index dropped 1.27% in August, bringing year-to-date (YTD) total return to 1.66%. Its broader benchmark, S&P Pan Asia Bond Index, aggregates the returns from 10 countries in Pan Asia and calculated in USD, dropped -0.56% YTD.

Nevertheless, Malaysia has better fundamentals comparing with other Asian countries.  Malaysia has been assigned solid credit ratings of A-/A3/A- . It also released better-than-expected 2Q15 real GDP growth at 4.9% y-o-y.

In fact, the Malaysian bond market almost doubled its size from 2007 to currently MYR 423 billion. Similar to other Asian bond markets, the corporate bond market expanded rapidly from a merely 5% to 15% of the overall market.   Among the corporates, over 90% of exposure belongs to financials sector, with popular names like Malayan Bank, CIMB Bank, Public Bank and RHB Bank.

Looking at the yield performance, the yield-to-maturity tracked by the S&P Malaysia Bond Index has widened 17bps YTD to 4.14%, as of August 18, 2015. The yields of the S&P Malaysia Government Bond Index and S&P Malaysia Corporate Bond Index currently stand at 4.02% and 4.78%, respectively.

Exhibit 1: Market Value

Source: S&P Dow Jones Indices LLC. Data as of August 13, 2015. Past performance is no guarantee of future results. Chart is provided for illustrative purposes and reflects hypothetical historical performance.

Source: S&P Dow Jones Indices LLC. Data as of August 13, 2015. Past performance is no guarantee of future results. Chart is provided for illustrative purposes and reflects hypothetical historical performance.

Exhibit 2: Yield-to-Maturity

Source: S&P Dow Jones Indices. Data as of August 13, 2015. Charts are provided for illustrative purposes. This chart may reflect hypothetical historical performance. The S&P Malaysia Bond Index and country subindices (the “Index”) were launched on March, 12, 2014. All information presented prior to the launch date is back-tested. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. Past Performance is no guarantee of future results. Complete index methodology details are available at www.spdji.com.

Source: S&P Dow Jones Indices. Data as of August 13, 2015. Charts are provided for illustrative purposes. This chart may reflect hypothetical historical performance. The S&P Malaysia Bond Index and country subindices (the “Index”) were launched on March, 12, 2014. All information presented prior to the launch date is back-tested. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. Past Performance is no guarantee of future results. Complete index methodology details are available at www.spdji.com.

 

 

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