This article first appeared in The Edge Financial Daily on October 11, 2018 - October 17, 2018

KUALA LUMPUR: The recent foreign selling in domestic bond and currency markets could be a boon for investors, said Aberdeen Standard Investments head of sovereign debt Kenneth Akintewe.

“The lower foreign holdings will reduce market volatility and the valuations are attractive now,” he said at an Investment Conference yesterday.

Akintewe noted that the recent developments, for instance, the collapse of the crude oil prices and the outcome of the general elections, have “spooked” foreign investors in Malaysia.

“If you compare the valuations with what you see over the last few years, you are able to take positions in anything from 10-, 15- to 20-year bonds ... the [Malaysian bond] market looks very, very cheap,” he said.

Over the last few years, a number of events have affected investor sentiment in Malaysia, for example, the 2015 commodity shock and certain restrictions on foreign investors’ ability to hedge currency risks here.

“The other thing, of course, is the surprise general election results. The election has created a lot of uncertainties, for example, towards the country’s fiscal position.

“Along with that you see notable correction in bond yields, particularly on the longer end of the curve. All that may sound like a bad thing but when you clear up positioning like that, it means less volatility in the market,” said Akintewe.

He pointed out to the local bond market which has remained as one of Aberdeen’s more important markets in terms of Asian and global emerging markets portfolio.

“It is one of the larger, more liquid markets both in government and corporate markets in the region,” he said, adding that Aberdeen retains a “significant exposure” in the country.

Malaysia, he said, is supported by pretty robust fundamentals compared with many other emerging markets including a current account surplus and a beneficiary of rising commodity prices such as crude oil.

Akintewe also attributed the stability to the little correlation between Malaysian bond yields and US Treasury as opposed to other emerging markets’ portfolios like in Singapore and Hong Kong.

“One of the biggest risks [there] is of course is the sharp rise in US Treasury yields ... [Malaysia] provides quite a bit of diversification away from US Treasury like risks, away from the broader emerging market-type risks and some stability in their portfolios,” he said.