KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
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Leveraged loan activity is expected to pick up after recent market stabilization, but investors are approaching junk-rated loans with caution, especially in light of a potential economic slowdown.
Key Highlights:
Market Pullback: Last week saw a significant reduction in leveraged loan deals, with only $3.3 billion worth of loans sold, compared to the $10 billion weekly average this year. This slowdown was triggered by disappointing jobs data released on August 1 and 2, which raised concerns about lower-rated debt and prompted forecasts for more aggressive interest rate cuts.
JetBlue Airways Loan Deal: JetBlue Airways completed a five-year term loan deal, originally seeking $1.25 billion but downsizing to $750 million while increasing its bond offering from $1.5 billion to $2 billion. This adjustment reflects the cautious approach of borrowers in the current market environment.
Investor Sentiment: Investors are wary of the potential for reduced earnings from leveraged loans if the Fed cuts rates as expected. While lower rates may benefit highly indebted companies by easing their borrowing costs, it could also lead to a decrease in financing availability in the leveraged loan market.
Outflows from Leveraged Loan Funds: Last week saw significant outflows from leveraged loan funds, totaling $3.1 billion, the largest since March 2020. This included a record $2.4 billion outflow from exchange-traded funds.
Volatility in the Market: The Morningstar LSTA US Leveraged Loan Index experienced its worst daily performance on August 5 since the collapse of Silicon Valley Bank in March 2023, though it has since recovered. Several opportunistic loan transactions, including those for Focus Financial Partners, SeaWorld Entertainment, and SBA Communications, were sidelined due to market volatility.
Future Outlook: While there is potential for a rebound in primary loan issuance, especially in the U.S. high yield and leveraged loan markets, ongoing economic concerns could impact refinancing and new loan plans for leveraged borrowers. As the Fed continues its rate-cutting trajectory, the gap between net loan supply and investor demand may sustain demand for new loans through the end of 2024. However, further signs of an economic slowdown could pose challenges for the leveraged loan market heading into 2025.
Conclusion: Investors are navigating a complex environment where the potential benefits of lower rates for borrowers are weighed against the risks of an economic slowdown. The coming months will be critical in determining the sustainability of demand for leveraged loans as the economic landscape continues to evolve.
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