KUALA LUMPUR: RHB Economics & Market Strategy expects S&P to review its negative view in the next 12-24 months while Moody’s Investors Service and Fitch Ratings stable outlooks to stay.

       In its 4Q outlook report issued on Friday, it expects Malaysia’s sovereign rating to remain unchanged in the next coming quarters, until the next review in June/July 2022.

       "While the government should not rest on its laurels, focus on fiscal reforms and consolidations should be the main focus while long-term measures to expand fiscal revenue should take place once priority over economic recovery and the wellbeing of the people from the pandemic dissipates.

       "While political risk seems to be in the backseat for now, we do not discount the possibility of the risk resurfacing – this is among the major rating points highlighted by all three rating agencies, as further changes to the leadership will increase the unpredictability of fiscal policies in the future," it cautioned.

       As from Malaysia's corporate bonds, RHB Economics & Market Strategy expects credit spreads to mildly tighten due to improved sentiment from economic reopening optimism and limited rollover risk in 4Q21.

       In addition, it continues to prefer high-quality credits with multiple access to capital market programmes (equity, debt, and hybrids), while certain sectors which are less ESG-friendly could see the pool of investors narrowing as more mandates are taking serious stances to meet the decarbonisation of the economy global agenda.

       It also expects supply to recover in 4Q21 as corporates seek to lock in lower funding costs.

       "We view primary issuances to increase in 4Q21 as issuers lock in long-term rates at cheaper costs. Government-Guaranteed (GG) and high-quality credits will retain their pole position in the MYR corporate bond markets, while growing interest in the unrated and perpetuals among high net worth investors (HNWI) and retail investors will add more dynamic to market growth.

       "We raised our target on gross corporate bonds/Sukuk supply to range between RM100bil and RM110bil in 2021 as the supply hit our earlier lower target of RM90bil in 3Q21," it said.

       RHB Economics & Market Strategy expects credit spreads to remain stable, but could tighten in 4Q21 on rising MGS yields.

       It continues to believe that the credit spread in ringgit corporate bonds will remain stable amidst rising yields, with domestic demand for high-quality credits to provide ample cushion for support."

       Strategic sectors such as quasi-government, infrastructure, banking, power and telcos remain our defensive picks, while cyclical plays such as construction, property and plantation are likely to demonstrate further improvement in 4Q21.

       "While we remain constructively positive on the fundamentals of the power sector, we have started to see investors’ preference towards ESG-mandated investments shifting attention to renewable energy (RE) and related industries," it added.