UOB Asset Management Bhd expects another Overnight Policy Rate (OPR) cut to be made this year if the Movement Control Order (PKP 2.0) is extended beyond February 4 or if the government introduces stricter restrictions.
Chief Investment Officer Francis Eng said, however, further reduction in interest rates would not make the country's fixed income market less attractive to foreign investors.
"We are in an environment where global interest rates are at a very low level and there are trillions of bonds with negative returns out there.
"With a lot of liquidity out there, UOB thinks the results in this country are still quite attractive," he said as quoted by Bernama at a virtual media briefing today.
Currently, the benchmark yield of Malaysian Government Securities (MGS) is at about 2.70%.
Last week, Bank Negara Malaysia (BNM) decided to maintain the OPR at 1.75%.
In Eng's previous presentation, he explained that Malaysian debt securities did not lose interest and remained in the attention of foreign investors, although Malaysia's sovereignty rating by Fitch Ratings Inc last year fell to BBB +.
“The low global interest rate environment strongly supports the Malaysian fixed income market.
"Unlike the equity market, UOB has seen foreign investors enter Malaysia in the fixed income space, but foreigners continue to buy Malaysian fixed income securities," he said.
He quoted data from BNM and data provider CEIC as saying that the total foreign-held debt securities in Malaysia was RM223.0 billion, up from RM219.4 billion in November 2020 and RM217.5 billion in October 2020.
Similarly, total monthly inflows of debt securities remained in positive territory, with RM3.6 billion recorded during December 2020, RM1.9 billion in November 2020 and RM8.0 billion in October 2020.
In terms of economic performance, Eng predicted that the country's Gross Domestic Product (GDP) will only return to the level before Covid-19 by 2022 instead of 2021 due to the ongoing PKP 2.0.
"However, this depends on what happened in PKP 2.0, because the situation is still uncertain and it is not easy to make any expectations.
"But basically, we are confident the probability for recovery to be greater in 2022," he said.
Overall, Eng predicts the Asian economy will rise above the levels before Covid-19 in 2021, led by China, the first economic power to recover from Covid-19.
For ASEAN, he expects sectors such as finance, consumers and real estate to benefit from the economic reopening.
Going forward, Eng said, the global economy will be influenced by factors such as the government's fiscal and monetary policies that remain supportive of the global market as well as the launch of the COVID-19 vaccine which will put the economy on a recovery path.
"The continuation of positive factors for Asia includes factors such as the weakness of the US dollar including the easing of trade wars between the United States and China," he explained.
