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Budget 2022: Impact on fixed income market almost negligible, says Manulife

12/11/2021 05:36 PM

KUALA LUMPUR, Nov 12 -- The impact from Budget 2022 on the fixed income market is almost negligible, given that there were no major surprises in terms of the country’s debt financing requirement and fiscal position, said Manulife Investment Management (Manulife).

In an investment note today, Manulife said its Malaysian fixed income strategies maintained a defensive portfolio, with short duration positioning to minimise market risks.

“We still prefer to invest in short-to-medium term corporate bonds to enhance income return for our strategies,” said the investment firm. 

According to the note, Manulife remains difficult to turn bullish on the local bond market given that the macro backdrop is one of rising rates environment and tapering-induced receding global liquidity.

“Concerns over cost-push inflationary pressures due to the energy crunch and supply disruptions also lead to higher bond yields. 

“In confluence, these factors tempered our outlook for local bonds despite cheaper valuation and more constructive demand.

“In the near-term, yield movements are likely to be influenced by regional and global factors, more so than local ones,” it said. 

In addition, Manulife said, within Malaysia, it expects the reopening of the economy in the fourth quarter of 2021 (4Q 2021) to raise growth prospects meaningfully and allow Bank Negara Malaysia to keep the Overnight Policy Rate unchanged at 1.75 per cent for the rest of the year.

“The expected economic improvement should also bode well for the country’s credit market in general,” the company said. 

Meanwhile, regarding the impact on the equities market and strategies, it said their Malaysia equity strategies are impacted in the short term by virtue of the knee-jerk selling across the equity market immediately after Budget 2022 was unveiled.

“Performance was, nonetheless, buffered by overweight positions in stocks which benefit from the digitalisation theme, for example, mostly technology companies which enjoy tax incentives were least impacted by the “Prosperity Tax”.

“As our strategies focus on companies with structural earnings growth potential over a longer investment horizon, we are unperturbed by short-term market gyrations and (hence) maintain our investment strategy,” it said. 

According to the note, overall, Budget 2022 has not changed Manulife’s investment strategy as they continue to believe that portfolio diversification will be key to navigating the current uncertain market.

“The main investment themes that we like, such as deglobalisation, digitalisation, clean energy, and the economic reopening remain intact and will continue to anchor the basis of our stock selection,” it said.

In the longer term, Manulife remains positive on the prospects of the market, which is driven by anticipation of earnings recovery from the COVID-19 pandemic and reopening of the economy.

“We remain watchful on the impact of China’s regulatory reform and the recent power supply constraint.

“The slowdown in China’s growth may have a spillover effect on regional growth and performance of Asia’s equity markets,” it said.



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