KUALA LUMPUR: Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus does not foresee any major impact from the Norwegian sovereign wealth fund’s move to reduce exposure in emerging markets, including Malaysia.
“We have a deep pool of domestic institutional investors. Even when there were periods of significant outflows, our bond yields did not move as much as what other countries were experiencing when they suffered the same kind of outflows. Bond yields increased after outflows but recently they declined to levels we saw beginning of the year,” she said.
The outflows in April amounted to RM7.1 billion as a result of external developments, which Nor Shamsiah said is a normal feature of investing in financial assets.
“There will be investors who take a shorter-term position and investors who take a longer-term position, so the varied participation of investors increases the depth of the market and is good for the Malaysian market,” she added.
To partly address concerns that Malaysia may be excluded from the global bond index, BNM has announced further initiatives to enhance market liquidity.
“This series of measures is a com-bination of productive talks we’ve had with investors, including the index providers. This would partly address some of the reasons of the possible exclusion of Malaysian bonds and enhance the accessibility of the investors to the onshore hedging programme,” Nor Shamsiah said.
The initiatives include increasing flexibility for dynamic hedging programme participants to manage foreign exchange (FX) risks. To facilitate the management of FX risks, taking into account institutional investment profiles, registered institutional investors can now enter into forward contracts to buy ringgit beyond the current 25% (of underlying assets) threshold upon approval by BNM.
To enhance onshore market liquidity and accessibility, BNM has expanded the dynamic hedging programme to include trust banks and global custodians. The programme has 88 registered investors managing a total of US$30.8 billion (RM128 billion) in assets.
To ease investors’ accessibility to the onshore FX market, the FX transaction and documentation process will continue to be improved and simplified. A standard docu-mentation guide for FX transactions has been developed by the industry and will be circulated via the Association of Banks Malaysia for reference by market participants.
Recognising the important role of the repo market in secondary market trading activities, BNM will increase the availability of off-the-run bonds to be borrowed via repo for market-making activities. The guideline will be reviewed to allow, among others, extending the repo tenor beyond one year.
To further develop an effective hedging platform for investors, BNM, in colla-boration with Securities Commission Malaysia, Bursa Malaysia and key market players, will enhance the delivery mechanism for MGS futures settlements by year-end.
BNM will continue to facilitate the market-making capacity of Appointed Over-seas Offices (AOOs) to ensure sufficient access to ringgit prices. The AOO frame-work, in place since 2016, serves to facilitate greater access to the Malaysian financial market by enhancing the provision of ringgit liquidity beyond local trading hours. Currently, there are 151 AOOs from 21 banking groups operating in 26 countries.