Malaysian bonds spring back to life

Malaysia’s bonds are stabilising, firing up a debate on when to invest in Asia’s worst-performing debt.

The country’s corporate dollar-denominated notes have returned 1.5 per cent this month, paring their losses for the year to 1.7 per cent, the biggest on a JPMorgan Chase & Co index.

The cost of insuring the nation’s sovereign debt has fallen the most in four years in October, while the ringgit has rallied 3.2 per cent after a decline of 20 per cent in the first nine months.

PineBridge Investments and Vanguard Group warns Malaysian debt might be oversold as signs that a scandal involving Prime Minister Datuk Seri Najib Razak had not derailed the nation’s finances.

Malaysia’s economy was still expanding by 4.9 per cent at the end of June, soured loans inched up but remained near April’s 27-year low of 1.17 per cent and the nation recorded a US$10.2 billion (RM44 billion) trade surplus for August.

Omar Slim, a Singapore-based vice-president at PineBridge Investments, which manages US$78 billion globally, said: “Malaysian growth has been more resilient and there’s a lot of bad news already factored into current valuations.

“It may be reaching a point where investing in their bonds could be interesting.” Dollar notes due in 2022 of Malayan Banking Berhad, Malaysia’s largest lender, are trading at a spread above US Treasuries, that is almost 100 basis points wider than similar-length securities of its Thai equivalent Bangkok Bank, which has a credit score one level lower.

Emerging-market funds managed by Vanguard bought some of Malaysia’s sovereign bonds due in 2025, according to a September 30 filing.

That added to other holdings, including the nation’s debt due in 2016, 2021 and 2045.

“Given what we think we know about Malaysia, it is a bit oversold,” said Jonathan Lemco, senior sovereign analyst at Vanguard, which runs the world’s biggest bond fund.

“From a macro standpoint, the economy is still growing, albeit at a slower pace, debt management is good, even if not as good as it used to be and Malaysia is reasonably stable. And they have one of the best central banks in the region,” he said.