KUALA LUMPUR, Nov 24 (Bernama) -- RHB Research recommended extending the duration in the local currency government bond market, with its average Malaysian Government Securities (MGS) 10-year yield of the first half of 2023 (H1 2023) forecast of 4.0 - 4.30 per cent, followed by 3.90 - 4.20 per cent remains unchanged.
In its Chief Economist’s Insights today, the research firm said the balance of risks to these 2023 forecasts is tilted toward lower yields.
It said Malaysian 10-year government bonds are one of the top performers in the world on a year-to-date basis across global asset classes and could remain as such in H1 2023.
The four main reasons to buy from the local currency bond market are net capital inflows to the domestic government bond market to accelerate in the next one to three quarters and the domestic economic policy outlook being positive for bonds.
Other reasons are resilient growth and inflation expectations being anchored is positive for debt sustainability in the future and is positive for bonds in 2023 and global factors related to the US are positive for the outlook for the local currency bond market in 2023, RHB Research said.
In the foreign exchange of ringgit against the US dollar, the move down below 4.50 today is massive and the firm would be cautious in believing that these prints below 4.50 are sustainable.
“We believe that ringgit/US dollar could trade back up to around 4.60 by year-end. Our H1 2023 ringgit/US dollar forecast of 4.70-4.80 remains unchanged for the time being,” it said.
Following the changes in the ruling coalition, the firm said the balance of the risks is tilted towards a delay in Budget 2023 re-tabling.
It could take until end-January 2023 to pass Budget 2023.
“We would be keeping an eye on any possible changes to the budget tabled by the previous government and we view that ‘people-oriented’ measures and gradual fiscal consolidation would remain top priorities for the new government.
“Cash transfers and consumer-friendly type policies would continue to be in the budget,” it said.
Another interesting aspect that the research firm would remain watchful of would be the allocation of development expenditure (DE).
In the previous budget, the transport subsector accounts for the largest share, constituting 17.3 per cent of total DE through major infrastructure projects.
Potential revision of the allocation might be possible, especially for those that are new and existing projects that have yet to start the tender process.
“For now, our base case is that some of the large-scale transport-related projects are likely to be continued which are East Coast Rail Link, Light Rail Transit 3 (LRT3) and Johor Bahru–Singapore Rapid Transit System (RTS Link).
“We also note that the long-delayed Mass Rapid Transit 3 project tenders have gone out on Oct 31, with a closing date of Nov 16 being put in place and awards will take place there-after.
“In our view, a higher allocation of DE could be tilted towards Sabah and Sarawak,” it added.