Posts Tagged ‘malaysia’

Malaysia : expanding bonds

flag of malaysiaAlready one of the largest bond markets in Asia, Malaysia is working to expand its bond activity horizontally and vertically, extending the scope of existing products while planning to offer new products to attract more funds.

As part of these efforts the Malaysian stock exchange is looking to encourage wider bond activity, having announced plans to launch a secondary trading platform for bonds, including Islamic paper.

Though no exact timeline has been set for the move, Raja Teh Maimunah Raja Abdul Aziz, Bursa Malaysia‘s global head of Islamic capital markets, said the introduction of a secondary bond trading platform was a response to demand from retail investors and would improve transparency.

“The only way to bring retailers on would be through the exchange,” she said in an interview with the Reuters news agency in early October. “The over-the-counter market is not transparent in terms of pricing so you cannot get the retailers to come on.”

Once issued, there is little trading in most Islamic bonds, with Raja Teh describing the focus on fixed income as a defensive investment. Defensive or not, there are some, such as Mohd Razlan Mohamed, the chief executive officer of Malaysian Rating Corporation Berhad (MARC), who question the timeliness of the proposed secondary trading platform.

“The local markets are not ready for a secondary trading system for three reasons, investors can invest in bond funds already, which provides them with exposure; there are cost implication for bond issuers, this will drive up costs; and thirdly, this is for sophisticated investors only, most don’t understand a lot of the existing products on the market.”

For Steven Choy, the chief executive officer of Cagamas Berhad, Malaysia’s national mortgage corporation and leading securitisation house, said there needed to be more issuance to develop the secondary bond market.

“We are already the largest in South-east Asia, the third in Asia, but it is mostly buy-and-hold insurance companies who want long term-paper and they do not trade. Therefore, we need more depth and issuance,” he told OBG.

The government has moved to address the question of issuance, setting up Danajamin Nasional, a state-owned institution tasked with providing financial guarantees to issues of private debt and Islamic securities, in March this year as part of its economic stimulation programme.

The agency was provided with a paid-in capital of $290m when established, a figure officials said could be doubled, and its charter allows it to offer insurance for investment-grade public debt or Islamic securities totalling up to $4.3bn.

On October 8, Prime Minister Datuk Seri Najib Razak told a press conference that Danajamin had already received seven applications so far, though he did not clarify whether these had been finalised.

While the government believes Danajamin will broaden the base of the bond sector and encourage more investors to buy into the market, not all agree, taking issue with the agency’s focus on the already well-served triple-A bonds segments.

Cagamas’ CEO warns that rather than strengthen the bond market, Danajamin could have an adverse effect by targeting triple-A bonds to the exclusion of others.

“Danajamin’s role in the market has been to distort it. If they issue for only triple-A bonds then who will buy BB for example,” said Choy.

With the economic crisis having hit at lesser rated bonds, there has been a drying up of credit for smaller companies, according to Razlan.

“Up until Q2 2008 business was good, but then risk aversion set in and investors did not even want to know about single-A rated bonds, they would only look at triple-A bonds,” he said. “No one wanted to invest or underwrite these bonds yet they form 30-40% of the market. This was not because of a lack of liquidity but risk aversion.”

Tan Sri Datuk C Rajandram, the executive deputy chairman of Rating Agency Malaysia Holdings (RAM), concurs, saying that the demand side has become more risk averse, with bonds lower than AA not coming onto the market.

“The economy is down and so the requirement for funding has also dropped. Much will depend on the stimulus packages,” he said in an interview with OBG. “Everyone is avoiding the corporate sector, with no attraction to place bonds on the market, even though in Malaysia banks are very liquid.”

Though most experts agree that there are high levels of liquidity in the market, more needs to be done to increase the appeal of bonds below triple-A. According to a report issued on October 9 by MARC, the value of newly rated bonds assigned and announced in Malaysia for the first nine months of the year totalled $9.3bn, mainly at the top of the ratings range.

While this trend is expected to continue in the short term, with the Malaysian economy set to move out of recession and post solid growth next year, investors could be less adverse to a bit of risk, and more enthused for bonds.

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Malyasia – not in recession, but government steps up cash injection


Malaysia is facing a difficult time due to the global economic downturn but the country has still not entered into recession, Second Finance Minister Tan Sri Nor Mohamed Yakcop said. The government is prepared to take proactive measures to stimulate the economy in the country and ensure that the people, especially the unemployed get better treatment through the strategy that will be presented under the country’s
upcoming mini budget.

“We are not in recession yet. Recession is defined as two consecutive quarters of negative growth in real gross domestic product (GDP),” noted the Minister when asked to comment on the current economic scenario in the country.”We are facing a challenging time,” Yakcop told reporters after winding-up the debate on the motion of the King’s address at the Parliament per Bernama.

The country recorded a GDP growth of only 0.1 percent in the fourth quarter of 2008 compared with a growth of 4.7 percent in the third quarter. For the whole of 2008, Malaysia recorded a GDP growth rate of 4.6 percent compared with 6.3 percent in 2007.
Being an open economy, the global economic downturn will have some impact on the economic growth of the country.

“The economic slowdown in other countries like the United States, Europe and Singapore where many companies have gone bankrupt and many workers have lost their jobs has become a challenge for Malaysia, which is small and dependent on global trade,” the Second Finance Minister said.

Deputy Prime Minister and Finance Minister, Datuk Seri Najib Tun Razak will table the mini budget at the Parliament on March 10. Yakcop also said that among the major items that will be discussed in the mini budget will be on ways to boost the level of confidence among the public, especially investors.

“We believe that we can retain confidence level in the economy through a strategy that we will take, and via working very closely with the private sector.”

Meanwhile in his speech, he said the second economic stimulus packagewas not expected to have a significant impact on inflation. In fact, the country’s inflation is expected to subside this year, supported by moderating commodity prices and the price reduction campaign undertaken byseveral retailers.

In January, Malaysia’s Consumer Price Index stood at 3.9% compared with 4.4% in December 2008. To date, a total of RM5 billion out of the RM7 billion allocated under the first economic package has already been distributed to more than 20 ministries andagencies involved and they are in various stages of implementation. A total of 8,474 projects worth RM567.9 million have been carried out to date.