Fitch downgrade of Malaysia’s ratings won’t cause major bond sell-off, says Manulife

KUALA LUMPUR: The downward revision of Malaysia’s sovereign credit rating by Fitch Ratings will likely cause a knee-jerk price pressure on the Malaysian Government Securities (MGS) curve and Malaysia’s US-dollar bonds, but not a major bond sell-off like the one in March 2020.

Thereafter, Manulife Investment Management said it expects buy-on-dip demand to return and stabilise the market, given that the bond market is still supported by expectations of a prolonged low interest rate environment, healthy domestic liquidity and compelling real yields.

On Friday, Fitch Ratings downgraded its sovereign credit rating for Malaysia by one notch from ‘A-’ rating with a negative outlook to ‘BBB+’ with a stable outlook.

“Local investors have no pressing reasons to trim their Malaysia government bond holdings, though they typically take the cue from the overall market sentiment, which in turn, could be led by fund flows from foreign active fund managers,” Manulife Investment said in a note.

The negative sentiment created by the downgrade could result in a similar knee-jerk selling action by foreign investors. However, it expects the market impact to be mild, given the low foreign shareholding levels of Bursa Malaysia (20.8% as at end-November 2020), as well as market support from retail investors, whose participation rate has been strong at 34.4%. – Bernama