· We forecast a gross PDS supply of MYR75-85b in 2017. Net funding needs from major infrastructure projects and refinancing requirements from domestic banks/DFIs are among the key drivers. Supply landscape is expected to remain similar with majority of the issuances from high grades GG/AAA and perhaps sporadic interes

MY Credit Outlook 2017: Slightly under the weather

·         We forecast a gross PDS supply of MYR75-85b in 2017. Net funding needs from major infrastructure projects and refinancing requirements from domestic banks/DFIs are among the key drivers. Supply landscape is expected to remain similar with majority of the issuances from high grades GG/AAA and perhaps sporadic interest in unrated bonds due to the relaxation of rules on mandatory rating.

·         Broad credit condition in PDS market should remain stable, although likely with a continuation of negative bias rating trends with downgrades/outlook decreases outnumbering upgrades/outlook increases.  From rating agency’s perspective, of the eleven sectors that were reviewed by RAM five carry negative outlook (automotive, media, oil & gas support services, property and retail), five with stable outlook (plantation, power, telecommunication, toll roads and water) while only one sector (construction) is expected to be positive.

·         While we are constructive on credits in 1H17 on the back of our mildly positive view on MGS, current credit spreads are tight and we think corporate bonds may overall underperform govvies in the next 3 to 6 months. Front-end credits provide more reasonable spreads. MFRS 9, which introduces the SPPI test and must be adopted from January 2018, may prevent certain debt securities that are currently under the AFS category from being classified as FVOCI under the new accounting rules, thereby affecting demand and perhaps secondary liquidity.