Fixed Income Outlook Attribute to Hanifah Hashim, Head of Malaysia, Franklin Templeton 2022 has been an extremely volatile year for the domestic bond market, reflected by very low average index return ranging between 1.5% to 2.0%. Bank Negara Malaysia raised overnight policy rate by 100bps and anticipated to raise another 50bps in 2023, but this is way lower than the 400bps hike seen so far and potentially more for Federal Funds Rate (FFR) in the United States (US).
We are cautiously optimistic on the domestic fixed income outlook in 2023. We anticipate volatility will continue due to persistent inflationary pressures, softer global growth, and elevated supply of local bonds, however we think sentiment will also be influenced by market players second-guessing the Federal Reserve (The Fed) against a background of mixed activities and US inflation data.
Nevertheless, the fixed income universe already presents some very attractive investment opportunities because higher interest rates imply that fixed income can now finally deliver income again, with attractive risk-return profiles in some segments of the asset class, particularly from high quality domestic corporate credit.
However, given the volatility and uncertain macro environment, an active approach to security selection is at the moment indispensable, in our view. We are more positive on the prospects for fixed income investments than we have been for some time.
Article Attributed to Hanifah Hashim, Head of Malaysia, Franklin Templeton
