Malaysia’s budget eyed for catalysts to spur rebound in bonds

Malaysia’s sovereign bonds and currency are poised to rebound on robust economic indicators and expectations for fiscal discipline in the upcoming budget, investors said.

Prime Minister Datuk Seri Anwar Ibrahim’s spending plan, which is set to be released Friday, will likely show a lower budget deficit ratio of 3.9% from its 2024 target of 4.3%, and result in “slightly” reduced supply of bonds in next year, according to a note by Maybank.

Meanwhile, foreign direct investment continues to be a “positive” story and recovery in exports and tourism supports growth, said Anders Faergemann, a senior portfolio manager at PineBridge Investments in London. The nation’s bonds may provide “positive returns over the next three-to-six months,” he said. “We see more upside in Malaysia.”

The brewing optimism may be a sign that investors are scouring for local drivers that would spur a rebound, despite the recent selloff in local assets triggered by global tensions and the Federal Reserve’s pivot to easing.

After inflows of over $1 billion in July and August, Malaysian debt saw net outflows of $155 million last month, according to Bloomberg-compiled data. Yields on the nation’s 10-year bonds are up seven basis points this month to 3.79%.

The ringgit has fallen about 4% against the dollar this month. The currency has been hit by uncertainties around geopolitics and the US election that are boosting the dollar, said Prashant Singh, senior portfolio manager at Neuberger Berman Group LLC.

“We do not view this as an idiosyncratic issue for Malaysia, and still expect Malaysia to be one of the more robust economies in the region,” he said.

Investors will also get a snapshot of Malaysia’s growth Friday, when third-quarter gross domestic product data is released. Economists in a Bloomberg survey expect the pace of growth to ease only slightly from 5.9% in the second quarter, which was the fastest clip in 18 months. – Bloomberg