SIJORI -MYR Investment Strategy

I think some of those who were around during the CLOB debacle have bought a Iskandar property recently. CLOB is a thing of the past affecting just about 180,000 Singaporeans back in 1998, and little acerbity is left these days.

The future is in Sijori ! Singapore – Johor – Riau.

It crossed my mind last week which is why I am determined to write about it that geographical proximity has seen Malaysians regular banking customers in Singapore and yet other than property, businesses and maybe stocks, Singaporeans have not capitalised much on Malaysia’s capital markets boom.

Malaysian bonds are hardly marketed over here and bankers know very little about the instrument, even though nearly 43% (as of Sep 13) of outstanding Malaysian government bonds are owned by foreigners, who are mainly institutions.

My opinion is that Malaysia is coming of age and setting herself up for the global stage especially with their announcement of their intention to open up their capital markets by scrapping mandatory requirements for credit ratings from 2017 to broaden its corporate bond market. http://www.businessweek.com/news/2014-06-09/malaysia-to-scrap-mandatory-bond-credit-ratings-to-boost-market

Malaysia already holds the title as the world’s biggest Islamic debt securities market and Singaporeans should be aware that non Muslims can buy into those as well.

I would not touch Malaysian equities with a 10 foot pole, personally (guess where Blumont came from ?), but Malaysian bonds are  different matter.

Why now ?

  • Because the EM bonds will be a feature in a future when the supply from the developed world starts drying up.

EM issuance has tripled since 2008 with US 1.1 trillion worth issued in 2013 against just US 342 bio in 2008.  MYR local debt has swelled to USD 20 bio in 2013 excluding Islamic papers which has more or less overtaken Singapore’s SGD 19.8 bio last year.

  • Starting with fixed deposits, MYR is paying >3%
  • My target for SGDMYR is towards 2.40
  • Singapore and Malaysia are inextricably linked in terms of trade with 20% of Singapore total trade exposure (which weighs in heavily on the SGD currency basket)
  • Malaysia has moved past political impasse and is focussed on building wealth so we will be seeing a lot of friendly investor policies in the future
  • There are really no barriers to entry for the foreign investor except for hestitant Singaporean bankers and bankers are hesitant if they do not have an onshore entity to conduct settlements (ruling that offshore MYR accounts are not permitted)
  • Minimum denominations for investment starts at MYR 1,000

My suggestion is to start with simple government bonds and islamic bonds investments or fixed deposits if you must. Almost all private banks offer that facility – you just need to ask for it.

The returns on the govt bond curve starts at 3% for 1 year which compares well with fixed deposits. The sweet spot would be the 3-7Y tenors which factors in rate hikes and some houses predict it would be as early as next month.

MGS CURVE

Leverage will mostly get you no where in Malaysia with funding costs >3%.

Yet it is silly that we can have such optimism in the Iskandar which is really the future of old Singaporeans as Hong Kong exports their elderly to mainland China. Goodness, we are going to be able to MRT to KL  in a few years.

Does it not make sense to get some MYR exposure for the good things to come ?

PS : Looking at MYR bonds probably early July after the next central bank meeting.