MALAYSIA will remain on the FTSE Russell’s World Government Bond Index (WGBI) after it is taken off the global index provider’s watch list for reclassification of its market accessibility level from 2 to 1.

Analysts had previously projected a multi-billion ringgit outflow from the domestic bond market if Malaysia were to be dropped from the WGBI.

Morgan Stanley said in a research note in April 2019 that about US$8 billion (RM33 billion) would flow out of Malaysia as a result of exclusion.

The index provider said in March report that it is grateful for the constructive engagement with Bank Negara Malaysia and the positive initiatives that have been introduced over the last two years

“We commend BNM on its previously implemented and ongoing initiatives to address the concerns of foreign investors when accessing the Malaysian government bond market,” it said.

These initiatives include improving secondary market bond liquidity through more re-openings for Malaysian government securities (MGS) issuances. This indicates commitment to replace illiquid bonds with more liquid bonds and make more MGS available via repurchase agreements, thus facilitating an increase in trading volumes.

Physical settlement including of cash was also introduced for MGS futures, in addition to an interest rate hedging avenue while aiming to simultaneously boost underlying bond liquidity.

Malaysian has also enhanced the foreign exchange market structure and liquidity through increased price transparency after local trading hours via the now permanent Appointed Overseas Office (AOO) programme.

It has expanded the dynamic hedging programme to include Japanese trust banks and global custodians as well as streamlined foreign exchange documentation and due diligence process.

In April 2019, the global index provider put Malaysia on its watch list to review its market accessibility level over concerns of market liquidity.

A 2-to-1 downgrade would have made Malaysia ineligible for inclusion in the WGBI. – March 30, 2021.