Malaysian Bond Potential April 2014


ENR Asset Management who look after my personal portfolio held in Copenhagen sent the following recommendation for bond buyers.

Buy: BUY 3.26% Malaysia 01.03.2018

Malaysia offers a robust growth case with GDP (gross domestic product) expected to be north of 5% in 2014. Moody’s has in November 2013 furthermore lifted the outlook to positive on the basis of the fiscal initiatives and reforms which the government presented at end-2013, including the prospect of reducing the budget deficit to 3% of GDP in 2015. The current account surplus is presently around 11.7 billion Malaysian ringgit or 5.3% of GDP.

The government has cut the corporate tax rate to 24% from 25% and has announced further reductions and cuts in personal taxes in the wake of the introduction of the goods and services tax. These are generally initiatives which are heading in the right direction and which make Malaysia more pro-business and contribute to the consolidation of the public finances.

Malaysian Chart

We expect Malaysia to benefit from the global cyclical recovery. The robust growth case, where exports also contribute to growth, will be supportive of the country’s current account balance. We are already seeing strong growth above 5%, solid current account surpluses and low unemployment currently at 3%.

The political initiatives to reduce the budget deficit and economic reforms and a possible upgrade of the credit rating from Moody’s should be supportive of the currency. One of the largest risks for the ringgit is the major foreign exposure in Malaysian government bonds and the effects of higher US yields. The risk is that investors suddenly abandon Malaysia due to rising US yields and lower global liquidity.

The bond, currently priced at 98.93 and maturing March 1 2018, offers a yearly return in Malaysian ringgit of 3.55%.

Buy 3.26% Malaysia 01.02.2018 ISIN: MYBMI1300025 S&P rating: A

For questions about ENR Asset Management contact Thomas Fischer Thomas@enrasset.com

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