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UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviewed the recent decision by the FTSE.

Key Quotes

“FTSE Russell (FTSE) retained Malaysia on the Watch List (as of Sep 2020 review) for possible exclusion from its World Government Bond Index (WGBI). Malaysia currently has a 0.43% weight in the index. The next review is in Mar 2021.”

“FTSE acknowledges the additional initiatives by Bank Negara Malaysia (BNM), over the last twelve months to improve the accessibility of the Malaysian government bond market for foreign investors. However, FTSE is still evaluating the practical improvements from the initiatives alongside feedback from investors and stakeholders.”

“Malaysia was first placed on FTSE’s Watch List back in March 2019 for a potential exclusion. There is no mention of a definite time frame to be in the Watch List though we presume no longer than two years. We reiterate our view that a complete exclusion of Malaysia from the WGBI is low albeit Malaysia’s weight may be lowered marginally to pave for China’s inclusion from Oct 2021. We estimate the impact of a 0.1% weight reduction at ~MYR 10.4bn or 2.4% of MGS outstanding and 5.5% of foreign holdings of Malaysia’s government bonds.”