KUALA LUMPUR, Aug 12 — Malaysia’s debt capital market (DCM) issuance for the second half of 2024 (2H2024) is expected to match 1H levels or fall, driven by the government’s gradual fiscal consolidation, with the federal deficit expected to fall in the near term, said Fitch Ratings.

It said in a statement today that impetus could come from financial institutions and corporate issuances as they seek to refinance and diversify funding.

Malaysia’s DCM expanded by 4.4 per cent year-on-year (y-o-y) to cross US$550 billion (RM2.4 trillion) outstanding at end-1H2024 as the DCM faces risks from the ringgit, rates, commodity price volatilities, and global geopolitical events, said Fitch.

DCM issuance in 1H2024 fell by 8.3 per cent y-o-y to US$45.2 billion due to fiscal consolidation, with the deficit in 1H2024 lower than 1H2023, and the government made around 60 per cent of total issues in 1H2024 or US$28 billion, while financial institutions, corporates, project finance, and others held the rest.

Fitch global head of Islamic finance Bashar Al Natoor said sukuk is likely to stay dominant in the DCM due to a supportive ecosystem.

"Investors in Malaysia’s DCM are more diversified and this includes banks, provident and pension funds, Haj funds, insurance and takaful operators, and fund managers as compared with other Organisation of Islamic Cooperation (OIC) countries,” he said.

The firm rates US$16 billion of Malaysian sukuk, all investment grade, with issuers on a "Stable” outlook.

Meanwhile, Bashar said a stronger ringgit could attract more non-resident holdings of domestic government bonds.

"We expect the factors driving ringgit depreciation, including negative interest-rate differentials and portfolio investor sentiment, to wind down in 2H2024,” he noted.

Bashar also lauded the government’s efforts to support the ringgit, which included encouraging government-linked companies (GLCs) to repatriate foreign investment income and convert it to ringgit consistently. — Bernama