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KUALA LUMPUR (Dec 9): The downgrade of Malaysia’s sovereign credit rating by Fitch Ratings is likely to cause sudden price pressure on the Malaysian government equity curve (MGS) and US dollar bonds from Malaysia, but not a major bond sale. as in March 2020.
Thereafter, Manulife Investment Management said it expects declining purchase demand to return and stabilize the market as the bond market is still supported by expectations of a prolonged environment of low interest rates, healthy internal liquidity and convincing real returns.
On December 4, Fitch Ratings downgraded Malaysia’s sovereign credit rating one notch from ‘A-‘ with negative outlook to ‘BBB +’ with stable outlook.
“Local investors do not have urgent reasons to cut their holdings of Malaysian government bonds, although they typically follow the lead of general market sentiment, which in turn, could be led by cash flows from active foreign fund managers,” he said in a note.
The negative sentiment created by the downgrade could result in similar instinctive selling action by foreign investors. However, it expects the impact on the market to be slight, given the low levels of foreign participation in Bursa Malaysia (20.8% at the end of November 2020), as well as the market support from retail investors, whose rate participation has been solid, 34.4%.
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