Malaysia company dollar bonds are Asia's worst performing this year

[KLSE] Malaysian company dollar bonds are Asia's poorest performing this year and investors say worse is to come.

Notes from the oil-exporting nation are the only of the 16 Asian countries tracked by JPMorgan Chase & Co to decline this year, losing 1.57 per cent. Companies in the index include Petroliam Nasional Bhd (Petronas), the state-owned energy company, and 1Malaysia Development Bhd (1MDB), a government-backed investment firm that's been forced to dismantle amid surging debts.

Money managers from Invesco Ltd to One Asia Investment Partners Pte cite factors ranging from a 13 per cent fall in the Malaysian ringgit in the last six months, a 47 per cent slump in oil over the same period and debt repayment concerns at 1MDB as weighing on the nation's debt. 

They say the notes aren't yet a buying opportunity amid sustained weakness in the currency, which on Monday tumbled 0.8 per cent."We're bearish on Malaysia dollar bonds and the ringgit," Ken Hu, the Hong Kong-based chief investment officer for Asia-Pacific fixed income at Invesco, said on March 5. "Most other Asian countries are energy importers benefiting from lower oil prices. Malaysia is an energy exporter." Oil-related industries comprise as much as 15 per cent of Malaysia's gross domestic product, according to Moody's Investors Service. Policy makers cut the country's growth forecasts and budget deficit target in January in response to the drop in crude prices driven by a global supply glut.

US oil producers are spending less, idling rigs and delaying wells to stem output that's predicted to reach a four- decade high this year. That's having little effect so far, with the nation's crude inventories expanding by 10.3 million barrels in the week ended Feb 27, the most since 2001.

Malaysia is the second-largest oil and natural gas producer in Southeast Asia and the world's second-biggest exporter of liquefied natural gas, according to the US Energy Information Administration. LNG revenues are responsible for 2.7 per cent of Malaysia's GDP, World Bank data show."The soft crude oil prices are negative to Malaysia's trade and fiscal balances," said Mr Hu. "If crude oil prices stay low, liquid natural gas prices will likely follow." The ringgit slid to a six-year low versus the US dollar on Monday after US jobs data hardened speculation the Federal Reserve will lift interest rates by the end of June. The yield on 10-year notes rose 3 basis points, or 0.03 percentage point, to 3.95 per cent, the highest since Jan 22.