Budget 2024 to boost corporate bond market – Franklin Templeton

KUALA LUMPUR: Malaysia’s corporate bond market is expected to gain momentum through the expansionary Budget 2024 initiatives, said Franklin Templeton, one of the world’s largest asset management firms.

Its head of Malaysia business, Nor Hanifah Hashim said although the government bond market is expected to be volatile with an upward yield bias during this period (2024), the corporate bond market should do well as there is a window of opportunities for corporations to raise funds with attractive spreads above the government bond yields.

“With the planned reduction in fiscal deficit as announced in Budget 2024, we forecast a reduction of government bond supply over the next few years.

“The financial discipline put in place should also appeal to foreign investors through portfolio inflow and this will support local bond yields as well as the ringgit,” she said in a statement today.

Nor Hanifah stated that in the short term, there is a potential risk of an increase in government bond supply, particularly on the longer end.

This is due to the conversion of short-term Treasury Bills to longer-tenor government bonds, she noted.

In addition, inflation may still linger in 2024 due to the incremental two per cent increase of the sales and services tax (SST) to eight per cent, and the removal of the price ceiling for chicken and eggs.

“Although petrol subsidy rationalisation was not announced in this Budget 2024, the projected inflation of 2.1 per cent to 3.6 per cent seems to imply that this may be executed next year.

“As the petrol subsidy rationalisation scheme remains opaque at this juncture, the bond market has yet to price in this event. Bond yields should be supported once inflation uncertainties stabilise and prove to be manageable in the medium term,” Nor Hanifah said.

Narrowing further on the bond market, she said the construction sector bonds would do well if infrastructure spending is carried out in a timely manner in 2024.

“Continued emphasis on the road infrastructure projects in East Malaysia, which includes the Pan Borneo Sabah and Sarawak-Sabah Link Road Phase 2 projects, will prompt more construction companies to tap the bond market to seek funding, as well as some projects to be funded through government guaranteed issuance,” she added.

Meanwhile, Nor Hanifah said that Budget 2024 is well-balanced, emphasising good governance, fiscal responsibility, and a focus on the welfare of the country.

“Malaysia unveiled an expansionary budget for 2024 with a twin focus of boosting economic resilience and addressing the key issues of the day that impact the lives of its people.

“It is encouraging to note that the government is optimistic about the gross domestic product for 2024 and expects it to grow in the range of four per cent to five per cent, in line with the projections of the World Bank and the International Monetary Fund,” she concluded. – BK