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Malaysia retained on FTSE WGBI watchlist

25 Sep 2020 / 13:19 H.

PETALING JAYA: Malaysia continues to be included in the FTSE World Government Bond Index (WGBI) but will remain on the FTSE Russell Fixed Income Watch List for a potential downgrade.

“This follows recent initiatives by Bank Negara Malaysia (BNM) to improve secondary market liquidity and to facilitate foreign exchange (FX) transactions,“ FTSE Russell said in a statement yesterday following the September 2020 fixed income review.

It said Malaysia will be retained on the watch list, as of the September 2020 review, for possible reclassification from Market Accessibility Level 2 to 1.

FTSE Russell acknowledged the additional initiatives instigated by BNM, over the last 12 months to improve the accessibility of the Malaysian government bond market for foreign investors.

Market enhancements include, but are not limited to, firstly, improving secondary market bond liquidity through further progress on the establish of a Debt Management Office, an improved auction calendar that offers more re-opening of prior issues, a greater number of Malaysian Government Securities available via repo, consolidation of bond issuances to increase the outstanding size per issuance and reducing the number of issuances and, introducing MGS futures with physical delivery.

Secondly, enhancing the foreign exchange market structure through making permanent the Appointed Overseas Office programme, allowing Japanese local custodian banks to undertake third party FX and dynamic hedging and streamlining the FX documentation and due diligence processes.

“FTSE Russell will continue to engage with its advisory committees and other stakeholders, over the next six months, to determine the practical improvements that emanate from these important and welcomed initiatives, which should enhance the experience of international participants in the Malaysian fixed income market.”

Meanwhile, HSBC Global Research is of the view that Malaysia will keep its WGBI spot at the next review.

“While the trading liquidity of Malaysia government bonds may not be as high as that of developed market bonds, it is offset by the country’s relatively small WGBI weight of 0.42% as of Aug 31, 2020 and the central bank’s efforts to improve the trading environment,“ HSBC said in a report today.

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