As shaky prospects for the global economy continue, Malaysia’s bond market stands out by becoming the Islamic finance center for Asia with smart regulation and a growing ecosystem around Islamic finance, said Standard & Poor’s Ratings Services in a report on Tuesday, titled “Development of Malaysia’s Bond Market Is Still Assured Despite Global Turmoil.”
Approximately 70% of Malaysia’s domestic debt issuance is in the form of sukuks (financial certificates, similar to bonds, that are compliant with Islamic law), making it the world’s largest Islamic bond market with over 60% of global sukuk issuance originating from Malaysia (foreign currency A-/Stable/A-2; local currency A/Stable/A-1; ASEAN scale axAA+/axA-1).
“Policymakers in emerging markets view Malaysia as a poster child for bond market development, given that it’s now the fourth-largest bond market in Asia, after Japan, China, and South Korea,” Surinder Kathpalia, managing director at Standard & Poor’s, said.
“Malaysia’s bond market has a strong infrastructure and a record of solid growth due to a transparent and predictable regulatory environment, the availability of independent credit research, the existence of ‘risk-free’ bonds of various tenors, and a bond pricing service,” Kathpalia, added.
Standard & Poor’s maintains a strong outlook for Malaysia’s bond market, reflecting positive bond market developments, ongoing growth in Islamic finance, and steady macroeconomic fundamentals in the country.
Southeast Asian (ASEAN) local currency bond markets, including Malaysia’s, continued to bustle in 2011 with local currency bond issues, providing alternative funding and investment options for Asian issuers and investors when issuances in G3 currencies in Asia stalled.
“It wasn’t just ASEAN companies that tapped the markets, those in Hong Kong, India, and Korea also issued bonds in the region,” Kathpalia, said.
“ASEAN companies are likely to continue to seek alternative funding sources as those in G3 markets (U.S., Japan, and the eurozone) become harder and more expensive to tap,” he added.