FW: RHB FIC Strategy Budget 2018, from a Fixed Income Perspective - 27/10/17

 

 

 

27 October 2017

 

Fixed Income Strategy : Budget 2018, from a Fixed Income Perspective

 

Fiscal Consolidation Remains On Track

¨      Fiscal deficit to narrow to -2.8% of GDP in 2018. The much anticipated Budget 2018 was released today, with fiscal consolidation positively on track. Going forward, fiscal consolidation is expected to progress well in 2018 as fiscal deficit is expected to reduce further to -2.8% of GDP. (2017:-3.0%)

¨      Federal Government's financial position to improve in 2018, supported by higher revenue collection (from both corporate and personal income taxes), with revenue improving to an estimated MYR239.9b, circa 6.4% yoy growth versus 2017's projected revenue of MYR225.3b. Budget 2018 was tabled based on average Brent oil price assumption of USD52/barrel.

¨      Government remains committed to contain the total Federal Government Debt to GDP below the self-imposed 55% level. The Federal Government Debt to GDP was reduced lower to 50.9% as at end-June 2017 in line with continued efforts to embrace prudent debt management efforts. Going forward, the Federal Government Debt to GDP target is expected to moderate further to 50% of GDP in 2018.

Expected gross MGS/GII supply of MYR107b in 2018, benign net supply of MYR40b

¨      We expect the Federal Government's funding needs in 2018 to be funded primarily onshore via issuances of MGS/GII, with an expected gross MGS/GII supply of MYR107b (given that there is no scheduled USD Government of Malaysia sovereign debt maturity in 2018). Although gross supply appears somewhat sizeable due to combined MGS/GII maturities of MYR67b next year, net supply remains benign with an estimated amount of only MYR40b. Funds from upcoming MGS/GII maturities in 2018 may emerge as reinvestment flows, which will eventually provide support to the MYR bond scene. In fact, gross MGS/GII issuance next year mirrors a similar trend compared to gross MGS/GII issuance in 2017. (Gross MGS/GII supply in 2017: MYR107.5b, net supply: MYR40.8b).

 

¨      Meanwhile, a closer analysis of the maturity profile of outstanding MGS/GII suggest that issuance profile for the coming 2018 to skew towards the mid and longer-dated segment amid heavy concentration of maturities seen in the 2018-2022 space. This is in line with continued efforts to ensure a well-spread maturity profile.

¨      Given the high concentration of combined MGS/GII maturities worth MYR24.8b in 1Q2018, issuers of corporate bonds/sukuk may decide to front-load their respective bond/sukuk fund raising activities on the back of potential reinvestments from scheduled MGS/GII maturities, benefiting corporate bond/sukuk issuers in terms of pricing of primary prints as we anticipate more robust demand during these periods of high liquidity windows.

 

 

 

 

 

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