FI Research – Engaging Fitch Ratings

v Standard & Poor’s and Moody’s have affirmed Malaysia’s sovereign ratings. On the other hand Fitch Ratings has indicated that they are more likely than not to downgrade the ratings. The agency is anticipated to conduct a full review on Malaysia’s ratings before end of July 2015. High dependency on energy-related income, slippage in fiscal targets and risk of twin deficits would be credit negative for the country and could bring Malaysia into BBB+ range.

v The Ministry of Finance met Fitch Ratings in early June in an effort to convince about Malaysia’s five-year plan, fiscal rationalization and medium term fiscal framework towards fiscal balance by 2020.

v In an event of ratings downgrade, we expect a knee-jerk reaction as it coincides with seasonal weakness of Ringgit Malaysia over June-July period and any sell-down on fixed income assets will likely to be buffered by recent inclusion into Barclays indices. Of critical issue is if the downgrade could deter those investors with tight investment guidelines especially there is more bearish news on economic growth.