CIMB-Principal expects lower corporate bond issuances this year

KUALA LUMPUR: CIMB-Principal Islamic Asset Management expects new corporate debt issuances to drop to RM70 billion in 2014 as issuers are adjusting to a potential increase in interest rates.
However, its head of fixed income for the Asean region, Wong Loke Chin, said demand for local bonds and sukuk is still strong, with total issuances of RM32 billion year-to-date.
"Demand has been strong, especially from institutional funds like us, pension funds and insurance companies," he told a media briefing here yesterday.
Wong opined that bond issuers would prefer to wait until the interest rate scenario stabilises before issuing more debts. "With the rate hike, they (issuers) are shying from issuing, so the investors just wait and see," he said.
The expected RM70 billion bond issuance this year is significantly lower than RM85 billion and RM120 billion in 2012 and 2013 respectively.
Asked on the outlook for the fixed-income market, Wong said it is hard to project. "For the past two years, the market has been struggling, a rate hike is on the cards... but perhaps the fixed-income market will do much better," he added.
Meanwhile, chief investment officer Michael Zorich believes the United Arab Emirates and Turkey could offer more opportunities in the global sukuk market. "Dubai is a laggard because they had issue in 2008... we are 'overweight' on Dubai," he said.
On a separate note, Wong expects Bank Negara Malaysia to raise the Overnight Policy Rate (OPR) by 25 to 50 basis points to 3.25% to 3.50% in the second half of the year.
"The market has priced in the potential rate hike... we're looking for the yield curve to remain flat," he said, adding that the first rate increase since May 2011 will probably in July or September this year.
He did not rule out the possibility that the OPR will keep rising next year given that inflation is expected to be trending up in line with the implementation of the goods and services tax.
"With a higher inflation rate, there is a potential that Bank Negara will increase interest rates, but it also has to see how the economy is doing," Wong added.
As at December 31, 2013, CIMB-Principal Islamic's assets under management stood at US$2.31 billion (RM7.57 billion). It targets to achieve US$3.1 billion (RM9.97 billion) by the end of this year and with a three-year projection of US$5 billion (RM16.07 billion).