Malaysian ringgit staggers after index, fund double punch

Malaysian Ringgit/Bloomberg

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Earlier this month, Norway said its sovereign wealth fund will cut emerging-market debt including Malaysian securities from its index.

Wednesday 17, April 2019

(Bloomberg) -- FTSE Russell has announced that it may drop Malaysian debt from the FTSE World Government Bond Index because of concern about market liquidity.

Morgan Stanley said that getting dropped from the FTSE gauge may lead to outflows of almost $8 billion, based on the nation’s weighting of 0.39 per cent and the International Monetary Fund’s (IMF) estimate that $2 trillion track the index.

Min Dai, a Hong Kong-based Strategist at Morgan Stanley, said that foreign investors have been reducing their Malaysian government bond positions since late 2016 and held about $37 billion of the securities as of March.

 “The risk of dropping Malaysian bonds from the flagship index seems more likely than not, in our view, unless fundamental changes are made to improve Malaysia’s market accessibility level,” said Winson Phoon, the Head of fixed-income research at Maybank Kim Eng Securities.

Malaysia’s bonds had just capped a fourth month of gains in March on expectation that the central bank may cut rates as early as in May.

Bank Negara Malaysia pledged last month to keep monetary policy accommodative as global risks weigh on the trade-reliant economy. Even Prime Minister Mahathir Mohamad has weighed in, warning that the nation may impose measures to protect the ringgit if speculators attack the currency.

Stephen Innes, Head of trading and Market Strategy at SPI Asset Management, said, “Foreign bond inflows have been buttressing the ringgit of late as the market has started to price in the possibility of a BNM rate cut at the next policy meeting.”

“Even if the exclusion does occur it should not have any discernible effect on credit ratings so, despite this unexpected shocker, it’s likely a bit overdone, and I would expect cooler heads to prevail,” Innes said.

TAGS : Ringgit , FTSE World Government Bond Index, Bank Negara Malaysia, IMF, Prime Minister Mahathir Mohamad

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