CIMB MYR Weekly Fixed Income Commentary for 27 Jun 2014

Attached is the weekly market highlights for Jun 27, 2014:

Market Roundup

• Malaysia’s sovereign yield curve flattened as shorter term bonds rose 2-4bps week-on-week. Meanwhile, average daily trading volume declined from RM1.8 billion to RM1.6 billion.
• On the flip side, we saw active transactions in corporate bonds over the week. The market was going through consolidation, while focus was on higher quality papers along the AAA segment, which included Aman, PLUS and Nur Power tranches. Aside, we also noted decent trading interest on short term bonds, with maturity less than 3 years. We suspect the high trading volumes were due to quarterly portfolio rebalancing pairing with cautious sentiment ahead of the upcoming MPC meeting.
• Ringgit ABS market was quiet as only RM40 million worth of papers were transacted over the week, while trading interest concentrated was on Cagamas MBS Aug’20, which contributed half of the weekly volume.
• IRS rates were held pretty firm on week-to-week basis, despite the rally in US Treasuries. Aside, 5-year onshore and offshore spread stood firm around 9bps ahead of weekend, while 3-month KLIBOR fixing ended 1bp higher to 3.54%.
• US Treasury yield curve flattened as the longer end rallied, after the market noted the neutral statement made by Federal Reserve in the latest FOMC meeting. Meanwhile, we saw thinner bidding interest at Treasury auctions of shorter dated papers (2T, 5T and 7T) held over the week, as bid-to-cover ratios were a tad lower in general. In addition, indirect bidders showed stronger buying interest in recent auctions, compared to the prior auctions.
• Asian dollar credits were seen moving sideways, as an early rally resulted in quick profit-taking activities by midweek. Newer issues remained upbeat, as AmBank maturing 2019 tightened from issue spread of 150bps to 137bps, while China Hongqiao was traded higher to 103.28pts ahead of weekend.

RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of HSBC Bank Malaysia Berhad (HSBC Malaysia or the Bank) and the AA1/Stable ratings of its RM1 billion tier-2 subordinated bonds.

Published on 30 June 2014

RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of HSBC Bank Malaysia Berhad (HSBC Malaysia or the Bank) and the AA1/Stable ratings of its RM1 billion tier-2 subordinated bonds. The 1-notch differential between the Bank’s long-term financial institution rating and that of its subordinated bonds reflects the subordinated nature of the latter to the Bank’s senior unsecured obligations.
The ratings incorporate HSBC Malaysia’s strong domestic franchise and long-established market presence, in addition to its robust funding and liquidity profile, solid profitability and capitalisation as well as healthy asset quality. The Bank, wholly owned by HSBC Holdings plc (the Group), is among the leading locally incorporated foreign banks in Malaysia. Malaysia is among HSBC Holdings plc’s 20 priority markets, on top of being one of the 2 global hubs for HSBC Amanah – the Group’s Islamic banking business.
Reflective of its prudent risk management, HSBC Malaysia enjoys healthy asset quality; its gross impaired-loan ratio stood at 1.7% as at end-December 2013. However, its credit-cost ratio (0.4% in fiscal 2013) has always been relatively higher as it has a slightly larger exposure to unsecured financing than the industry average. After 2 consecutive years of double-digit growth in 2010 and 2011, HSBC Malaysia has adopted a more cautious stance and slowed down its lending since 2012. Last year, the Bank expanded its loan books by 6%; its growth rate is likely to remain modest moving forward.
HSBC Malaysia boasts a high proportion of individual as well as current- and savings-account deposits. Although its loans-to-deposits ratio has been increasing, it remained at a comfortable 75% as at end-December 2013. The Bank also has a very strong liquidity profile, with its Basel III liquidity coverage ratio well in excess of 100%. At the same time, HSBC Malaysia boasts a solid loss-absorption capacity, supported by a return on assets of 1.9% and a common-equity tier-1 ratio of 11.3%.

Media contact
Lim Yu Cheng
(603) 7628 1188
yucheng@ram.com.my

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AsianBondsOnline Newsletter (30 June 2014)

To read the full report, data and graphs go to http://www.asianbondsonline.adb.org/newsletters/abowdh20140630.pdf?src=newsletter&id=uWidK3KdmgXVUWes9IgIcqKp1miwxx

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News Highlights - Week of 23 - 27 June 2014

Consumer prices in Hong Kong, China rose 3.7% year-on-year (y-o-y) in May, the same rate of increase as in April. Consumer price inflation in Japan accelerated to 3.7% y-o-y in May from 3.4% in April amid sharper price increases for food, transportation, and utilities. Consumer price inflation in Singapore climbed to 2.7% y-o-y in May from 2.5% in April led by hikes in transport costs. On a month-on-month (m-o-m) basis, consumer prices in Singapore rose 0.5% in May. In Viet Nam, consumer price inflation increased to 5.0% y-o-y in June from 4.7% in May on the back of price hikes in food, housing, and transport costs. 

*     Viet Nam’s gross domestic product (GDP) grew at a faster pace in 2Q14, expanding 5.3% y-o-y following revised 5.1% growth in 1Q14. For the first half of 2014, GDP growth stood at 5.2% y-o-y. Meanwhile, Viet Nam’s exports and imports grew 14.9% and 11.0% y-o-y, respectively, in 1H14.

*     Hong Kong, China’s merchandise exports grew 4.9% y-o-y in May following a 1.6% fall in April, while its merchandise imports expanded 3.7% y-o-y in May after recording 2.4% growth in April. In the Philippines, merchandise export growth slipped to 1.3% y-o-y in April from 12.4% in March, and merchandise import growth fell to 3.0% in April from 10.6% in March. 

*     The Republic of Korea’s current account surplus widened to US$9.3 billion in May from US$7.1 billion in April. Hong Kong, China’s current account balance was in a deficit position amounting to HKD6.2 billion in 1Q14 after posting a surplus of HKD16.4 billion in 4Q13. 

*     Manufacturing production in the Republic of Korea dropped 2.3% y-o-y in May following 2.7% growth in April. Singapore’s manufacturing output contracted 2.5% y-o-y in May after recording 5.3% growth in April. 

*     Local currency (LCY) corporate debt issuance in the Republic of Korea amounted to KRW10.6 trillion in May, down 0.1% m-o-m, according to data from the Financial Supervisory Service (FSS). Issuance of asset-backed securities (ABS), bank debentures, and bonds issued by financial companies were up from a month earlier, while issuance of non-financial corporate bonds was down on a m-o-m basis.

*     Greenland, a property developer in the People’s Republic of China (PRC), last week priced a US$600 million 10-year bond at a coupon rate of 5.875% and a US$400 million 5-year bond offering a coupon of 4.375%. Korea Gas Corporation priced a US$500 million 12-year bond at a coupon rate of 3.5% last week. Krung Thai Bank sold a US$700 million Basel III-compliant 10.5-year bond at a 5.2% coupon last week.  

*     Government bond yields fell last week for most tenors in Hong Kong, China; Malaysia; the Philippines; Singapore; and Viet Nam. Yields rose for all tenors in Indonesia and for most tenors in the Republic of Korea. Yield movements were mixed in the PRC and Thailand. Yield spreads between 2- and 10-year tenors widened in the PRC, the Philippines, and Viet Nam, while spreads narrowed in Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; Singapore; and Thailand.  

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