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Global Economic Limbo:
The Emerging Markets
Slowdown and The Malaysian
Bond Market
©Copyright BOND PRICING AGENCY MALAYSIA...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND...
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Global Economic Limbo by Ms Hew Sue Ling

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"Global Economic Limbo: The Emerging Markets Slowdown and The Malaysian Bond Market" was presented by Ms Hew Sue Ling, Head of Pricing from Bond Pricing Agency Malaysia during the BPAM Annual Client Update 2016.

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Global Economic Limbo by Ms Hew Sue Ling

  1. 1. Global Economic Limbo: The Emerging Markets Slowdown and The Malaysian Bond Market ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD - All rights reserved. Presented by Hew Sue Ling Head of Pricing, BPAM
  2. 2. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 2 Oil Price vs World Supply and Demand 89 90 91 92 93 94 95 96 97 98 0 20 40 60 80 100 120 140 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Quarterly World Oil Demand (Mil Barrels per Day) (RHS) Quarterly World Oil Supply (Mil Barrels per Day) (RHS) Europe Brent Spot Price FOB (Dollars per Barrel) (LHS) 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016
  3. 3. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 3 The goal is to achieve sustainable economic growth Inevitable slowdown and expected to drag on Ripple effect across the world China initiated economic rebalancing to increase the consumption portion of economic growth Faced with challenges: high saving rates and low wages  economic slowdown China’s growth had been driven by investment, mostly funded by shadow banking and debt Resulted in excess capacity and economic bubble China Sneezes… Lower Investment Increase Consumption Sustainable Growth
  4. 4. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 4 …Global Economy Catches a Cold  General downtrend in global economic growth  Central banks grappling with deflationary pressures and slowdown 2.9 -1.0 1.3 2.6 -2.0 -2.8 7.5 7.0 2.7 0.7 1.6 2.4 -3.0 -4.5 7.6 7.0 2.1 1.7 1.6 2.2 -4.5 -3.7 7.7 6.9 2.0 0.7 1.6 2.1 -5.9 -3.8 7.3 6.8 US JAPAN EUROZONE UK BRAZIL RUSSIA INDIA CHINA GDPGROWTH% 1Q2015 2Q2015 3Q2015 4Q2015 ADVANCED ECONOMIES EMERGING MARKETS B R A Z I L R U S S I A
  5. 5. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 5 Global Economic Landscape 3,700 3,900 4,100 4,300 4,500 4,700 4,900 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 World Merchandise Trade Exports (USD Bil) Imports (USD Bil)  Adverse external developments: weak global trade, commodity rout and financial market volatility have contributed to the slowdown.  Risks have become increasingly centered on emerging and developing markets. 150 160 170 180 190 200 210 220 230 240 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 TR Core Commodity Index 10 15 20 25 30 35 40 45 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Volatility S&P500 Index
  6. 6. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 6 EM Slowdown and Global Growth Outlook 42 44 46 48 50 52 54 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 BRIC Manufacturing PMI Brazil Markit Manufacturing PMI Russia Markit Manufacturing PMI India Nikkei Market Manufacturing PMI China Caixin Manufacturing PMI Reading <50 indicates contraction 3.30% 3.20% 2.90% 3.10% 2.60% 2.80% 3.00% 3.20% 3.40% 3.60% 3.80% 2016 Projection 2017 Projection World Bank Global Growth Forecast Jun-15 Forecast Jan-16 Forecast 3.60% 3.80% 3.40% 3.60% 3.20% 3.50% 2.80% 3.00% 3.20% 3.40% 3.60% 3.80% 4.00% 2016 Projection 2017 Projection IMF Global Growth Forecast Oct-15 Forecast Jan-16 Forecast Apr-16 Forecast
  7. 7. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 7 Malaysia Economic Landscape  2015 was a challenging year with the Ringgit being the one of the worst performing currencies in Asia and Malaysia’s international reserves dropped significantly during the year  Malaysia’s exports and imports growth slowed in tandem with global slowdown 3.50 3.70 3.90 4.10 4.30 4.50 4.70 23 33 43 53 63 73 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Crude Oil Price vs USD/MYR Europe Brent Spot Price FOB (Dollars per Barrel) (LHS) USD/MYR (RHS, in reverse order) 3.10 3.30 3.50 3.70 3.90 4.10 4.30 4.50 80 85 90 95 100 105 110 115 International Reserves vs USD/MYR International Reserves (USD Bil) (LHS) USD/MYR (RHS, in reverse order) -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% Malaysia Monthly Exports and Imports Growth YoY Exports Growth YoY Imports Growth
  8. 8. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 8 Malaysia Economic Landscape 5.6 4.9 4.7 4.5 4.2 0.7 2.1 3.0 2.6 3.4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 Annual GDP Growth Rate (%) (LHS) YoY CPI Percentage Change (%) (RHS) Forecast for 2016 GDP Growth 4.0%-4.5% CPI 2.5%-3.5% Budget Deficit 3.1% of GDP
  9. 9. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 9 129 131 133 135 137 139 141 143 145 147 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 TR BPAM All Bond Index (MYR) Aug - Sept 2015: Malaysia foreign reserves dipped below USD100Bil and USDMYR weakened to 17-year low 1Q2016: Smooth uptrend as the Ringgit strengthens amidst general dovish environment Most of 2015: TR BPAM All Bond Index on a steady uptrend with no significant shocks up to end July. The Ringgit Bond Market
  10. 10. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 10 Foreign Holdings and Exchange Rate  Foreign holdings of MGS dropped to the lowest while Ringgit performed the worst in September 2015 in face of mounting uncertainties in both external and internal environments. 3.50 3.60 3.70 3.80 3.90 4.00 4.10 4.20 4.30 4.40 4.5042.0% 43.0% 44.0% 45.0% 46.0% 47.0% 48.0% 49.0% % Foreign Holdings - MGS (LHS) USD/MYR (RHS, in reverse order)
  11. 11. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 11 MGS: Short-Term vs Long-Term Yields 20 30 40 50 60 70 80 90 100 110 2.90 3.10 3.30 3.50 3.70 3.90 4.10 4.30 4.50 4.70 3-10Y Spread (bp) (RHS) 3Y MGS (%) (LHS) 10Y MGS (%) (LHS) Spreads widened as investors shortened portfolio duration as risk sentiment turned sour
  12. 12. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 12 Corporate Credit Spreads 17 37 57 77 97 117 137 157 10Y Quasi-MGS Spread (bp) 10Y AAA-MGS Spread (bp) 10Y AA3-MGS Spread (bp) 114 55 31 134 74 56 Class Spread 02 Jan 2015 (bp) 31 Mar 2016 (bp) Change (bp) Previous Equivalent Period Change (bp) 10Y Quasi-MGS 31 56 25 22 10Y AAA-MGS 55 74 19 18 10Y AA3-MGS 114 134 20 31
  13. 13. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 13 Fixed Income Index vs Equity Indices Risk vs Returns31 Mar 2016 YoY Returns Volatility Sharpe Ratio TR BPAM All Bond Index 4.60% 1.56% 2.95 FTSE Bursa Malaysia KLCI -6.18% 11.66% -0.53 S&P 500 -0.39% 16.54% -0.02  Sharpe Ratio of the TR BPAM All Bond Index was significantly higher than the FBMKLCI and S&P 500.  In addition to the higher volatility, equity markets had provided negative YoY returns as at 31 March 2016. Notes : Bubble size represents arbitrary market capitalisation Sharpe Ratio is defined as FTSE Bursa Malaysia, MYR 502B S&P 500, USD 19T TR BPAM All Bond Index, MYR 958B -8.00% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 0.00% 5.00% 10.00% 15.00% 20.00% Returns Risk Volatility turnsYearOnYear Re
  14. 14. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 14 Malaysian Bond and Sukuk Annual Outstanding Period 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1Q2016 Total Outstanding (MYR) 454 Bil 558 Bil 585 Bil 651 Bil 765 Bil 844 Bil 1,011 Bil 1,036 Bil 1,111 Bil 1,126 Bil 1,148 Bil
  15. 15. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 15 Primary Market – Quarterly Issuance Trend 28 27 26 29 30 22 22 24 25 11 6 8 14 10 12 10 13 26 8 3 8 4 6 7 2 6 9 1Q14 1Q15 1Q16 2Q14 2Q15 3Q14 3Q15 4Q14 4Q15 ISSUANCE – CORRESPONDING QUARTER COMPARISON (MYR BIL) Gov LT Rated PDS Quasi Gov First Quarter Second Quarter Third Quarter Fourth Quarter
  16. 16. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 16 Primary Market – Issuance Breakdown ^ Annualised data based on 1Q2016 issuance amount 42% 58% Issuance % Market Share by Principle Bond Sukuk Class (MYR Bil) 2014 2015 2016^ Government 102 103 102 Quasi Gov 25 20 33 LT Rated PDS 53 52 31 0 20 40 60 80 100 120 140 Bond Sukuk 66 63 19 41 6 22 ISSUANCE BREAKDOWN BY CLASS (2015 & 1Q2016) (MYR BIL) Gov LT Rated PDS Quasi Gov
  17. 17. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 17 Primary Market – Top Issuers by Amount Issued Top 5 Issuers by Amount Issued 1Q2016 Sunway Treasury Sukuk Sdn Berhad (MYR3.6 Bil) Sabah Development Bank Berhad (MYR3.4 Bil) Prasarana Malaysia Berhad (MYR3.1 Bil) Sime Darby Berhad (MYR2.5 Bil) Cagamas Berhad (MYR2.3 Bil) 3.4 3.5 3.5 3.9 5.6 5.7 6.6 7.5 9.0 10.5 Hong Leong Financial Group Berhad Danga Capital Berhad Malayan Banking Berhad Prasarana Malaysia Berhad Cagamas Berhad Sunway Treasury Sukuk Sdn Berhad DanaInfra Nasional Berhad Sunway Berhad Jimah East Power Sdn Berhad Sabah Development Bank Berhad 2015 League Table by Amount Issued – All excl. GOM, BNM and BNM Sukuk (MYR Bil)
  18. 18. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 18 Secondary Market – Quarterly Trading Trend  Since 2013, trading activities dwindled as investors shied away from local bond market amid global liquidity tightening initiated by the US Fed.  In 2015, total trade dipped below MYR1 billion.  In 1Q2016, trade volume picked up as the Ringgit strengthened and general dovish tone among major central banks gave domestic bond market a boost. 269 280 316 326 305 229 252 188 291 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 Quarterly Trade Volume (MYR Bil) -17% -18%
  19. 19. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 19 Secondary Market – Credit Segment Analysis 0.1 4.6 37.6 42.3 60.2 349.3 649.6 0 100 200 300 400 500 600 700 BBB~ A Quasi-Gov AAA AA GII MGS Total Trade Volume by Credit Segment for 2015 to 1Q2016 (MYR Bil) The most liquid PDS class is AA PDS Class 2015 to 1Q2016 2014 to 1Q2015 Trade Volume (MYR Bil) Trade Volume to O/S as at 31 March 2016 Trade Volume (MYR Bil) Trade Volume to O/S as at 31 March 2015 AA 60.2 34.3% 63.3 41.4% AAA 42.3 40.4% 40.5 38.4% Quasi-Gov 37.6 24.9% 33.4 24.6%
  20. 20. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 20 RINGGIT BOND MARKET PERFORMANCE FACTORS TO WATCH IN 2H2016 What’s in Store for 2H2016? Fed Tightening Cycle Crude Oil Price BNM Monetary Policy Direction US Presidential Election Geopolitical Tensions
  21. 21. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 21 Track and Time the Market
  22. 22. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 22 Bond Tracker Report Bond Tracker Report summarises key factors that had influenced the movements of evaluated MTMs for a specific list of bonds and duration Generic Interest Environment Rating Action(s) Credit Curve Effects Relative Pricing Trades/ Quotes Up to 5-year Horizon
  23. 23. ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD PAGE 23 Reference Timing Report Macroeconomic Environment Assessment Domestic Bond Market Activity GDP Oil Prices CPI Foreign Holdings Forex Monetary Policies Auction Calendar Business Sector Rating Assessment Issue Structure Supply Demand Issuer Specific Segment Analysis Domestic Bond Market Activity Intl Market Issue Tenure Indicative Issuance Window
  24. 24. THANK YOU No 17-8 & 19-8 , The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia Tel: +603 2772 0889 Fax: +603 2772 0808 Email : enquiries@bpam.com.my ©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD - All rights reserved.

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