SINGAPORE: Malaysia's credit-default swap performance since the general election on May 9 suggests investors see a decent chance of a ratings downgrade. Since the close of business on May 8, Malaysia's CDS spread has widened by 30bps compared to a change of 6bps for Indonesia and Philippines, which are both rated two notches lower on the Moody's and S&P scales.
A significant part of the deterioration in Malaysia's fiscal outlook is related to the absorption of costs related to 1MDB. That burden could reach 34.6 billion ringgit ($8.6 billion), according to Maybank Kim Eng Securities. This is on top of other debts discovered in government accounts since Lim Guan Eng became Finance Minister.
The deteriorating derivatives outlook has been mirrored by the portfolio outflows from Malaysia's equity and bond markets. While the major credit rating companies won't be rushed into judgment by CDS moves, investors are already voting with their feet on the direction. - Bloomberg
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