annual report for abf malaysia bond index fund...2018/02/27 · abf malaysia bond index fund...
TRANSCRIPT
Annual Report for
31 December 2017
ABF Malaysia Bond Index Fund
ABF Malaysia Bond Index Fund
ABF Malaysia Bond Index Fund
Annual Report
31 December 2017
ABF Malaysia Bond Index Fund
TRUST DIRECTORY
Manager
AmFunds Management Berhad
9th & 10
th Floor, Bangunan AmBank Group
55 Jalan Raja Chulan
50200 Kuala Lumpur
Board of Directors
Raja Maimunah Raja Abdul Aziz
Dato’ Mustafa Mohd Nor
Tai Terk Lin
Goh Wee Peng
Sum Leng Kuang
Investment Committee
Sum Leng Kuang
Tai Terk Lin
Dato’ Mustafa Mohd Nor
Zainal Abidin Mohd Kassim
Goh Wee Peng
Trustee
HSBC (Malaysia) Trustee Berhad
Auditors and Reporting Accountants
Ernst & Young
Taxation Adviser
Deloitte Tax Services Sdn Bhd
ABF Malaysia Bond Index Fund
CORPORATE DIRECTORY
AmFunds Management Berhad
Registered Office
22nd
Floor, Bangunan AmBank Group
55, Jalan Raja Chulan, 50200 Kuala Lumpur
Tel: 03-2036 2633 Fax: 03-2032 1914
Head Office
9th & 10
th Floor, Bangunan AmBank Group
55, Jalan Raja Chulan, 50200 Kuala Lumpur
Tel: 03-2036 2888 Fax: 03-2031 5210
Secretaries
Chen Bee Ling (MAICSA 7046517)
Tan Lai Hong (MAICSA 7057707)
Secretaries’ Office Level 8,
Symphony House, Pusat Dagangan Dana 1,
Jalan PJU 1A/46, 47300 Petaling Jaya,
Selangor Darul Ehsan
HSBC (Malaysia) Trustee Berhad
Business/Registered Office/Head Office
Fund Services, Bangunan HSBC, 13th Floor, South Tower
No.2, Leboh Ampang, 50100 Kuala Lumpur
Tel: 03-2075 7800 Fax: 03-2026 1273
ABF Malaysia Bond Index Fund
CONTENTS
1 Manager’s Report
23 Additional Information
33 Independent Auditor’s Report to the Unitholders
37 Statement of Financial Position
38 Statement of Comprehensive Income
39 Statement of Changes in Equity
40 Statement of Cash Flows
41 Notes to the Financial Statements
61 Statement by the Manager
62 Trustee’s Report
63 Directory
1
MANAGER’S REPORT
Dear Unitholders,
We are pleased to present you the Manager’s report and the audited accounts of ABF Malaysia Bond
Index Fund (“Fund”) for the financial year ended 31 December 2017.
Salient Information of the Fund
Name ABF Malaysia Bond Index Fund (“Fund”)
Category/
Type
Fixed Income ETF/ Income
Objective A listed bond fund that is passively managed against the given benchmark and the
returns will be expected to correspond closely to the performance of the benchmark
index.
Note: Any material change to the Fund’s investment objective will require the
unitholders’ approval by way of special resolution.
Index
Component
Details of the index component as at 31 December 2017 are as follows:
Code Issuer
Coupon
%
Final
Maturity
Notional
Amount (RM)
UG160018 Cagamas
Berhad
4.100
04 February 2019
1,120,000,000
VI140030 Pengurusan
Air SPV
Berhad
4.160
07 February 2019
1,000,000,000
VI140036 Prasarana
Malaysia
Bhd
4.080
12 March 2019
1,500,000,000
MH150005 Malaysia
Government
Bond
3.759
15 March 2019
7,177,897,000
GJ130070 Malaysia
Government
Investment
Issue
3.558
30 April 2019
10,000,000,000
VK120194 Johor
Corporation
3.680
14 June 2019
800,000,000
MS04003H Malaysia
Government
Bond
5.734
30 July 2019
7,315,546,000
GO090001 Malaysia
Government
Investment
Issue
3.910
13 August 2019
6,000,000,000
(Forward)
2
Code
Issuer
Coupon
%
Final
Maturity
Notional
Amount (RM)
GL120021 Malaysia
Government
Investment
Issue
3.704
30 September 2019
8,000,000,000
MJ140004 Malaysia
Government
Bond
3.654
31 October 2019
11,800,000,000
MO090002 Malaysia
Government
Bond
4.378
29 November 2019
17,119,000,000
ML120006 Malaysia
Government
Bond
3.492
31 March 2020
11,000,000,000
VI150052 Danga Capital
Bhd
4.100
09 April 2020
2,000,000,000
GH160004 Malaysia
Government
Investment
Issue
3.226
15 April 2020
7,000,000,000
GO090061 Malaysia
Government
Investment
Issue
4.492
30 April 2020
3,500,000,000
GL120098 Malaysia
Government
Investment
Issue
3.576
15 May 2020
11,000,000,000
VG170171 Pengurusan Air
SPV Berhad
3.960
05 June 2020
700,000,000
GN100021 Malaysia
Government
Investment
Issue
4.284
15 June 2020
5,500,000,000
MK130006 Malaysia
Government
Bond
3.889
31 July 2020
7,973,062,000
GJ150002 Malaysia
Government
Investment
Issue
3.799
27 August 2020
10,000,000,000
VI150192 Pengurusan Air
SPV Berhad
4.280
28 September 2020
700,000,000
MJ150003 Malaysia
Government
Bond
3.659
15 October 2020
11,742,134,000
(Forward)
3
Code
Issuer
Coupon
%
Final
Maturity
Notional
Amount (RM)
VK130260 Cagamas Berhad 4.150 28 October 2020 915,000,000
GN100060 Malaysia
Government
Investment
Issue
3.998
30 November 2020
3,000,000,000
MH170005 Malaysia
Government
Bond
3.441
15 February 2021
3,500,000,000
VN110023 GovCo Holdings
Bhd
4.450
23 February 2021
1,500,000,000
GL130069 Malaysia
Government
Investment
Issue
3.716
23 March 2021
9,500,000,000
GN110025 Malaysia
Government
Investment
Issue
4.170
30 April 2021
12,500,000,000
MO110001 Malaysia
Government
Bond
4.160
15 July 2021
13,500,000,000
GJ160002 Malaysia
Government
Investment
Issue
3.743
26 August 2021
7,000,000,000
VK140222 Bank
Pembangunan
Malaysia
Berhad
4.190
10 September 2021
700,000,000
ML140003 Malaysia
Government
Bond
4.048
30 September 2021
11,700,000,000
MJ160004 Malaysia
Government
Bond
3.620
30 November 2021
7,000,000,000
UI170031 Cagamas Berhad 4.150 09 March 2022 2,000,000,000
MI170001 Malaysia
Government
Bond
3.882
10 March 2022
8,000,000,000
GI170003 Malaysia
Government
Investment
Issue
3.948
14 April 2022
4,000,000,000
VI170144 Lembaga
Pembiayaan
Perumahan
Sektor Awam
4.170
15 April 2022
800,000,000
(Forward)
4
Code
Issuer
Coupon
%
Final
Maturity
Notional
Amount (RM)
VI170172 Pengurusan Air
SPV Berhad
4.060
06 June 2022
900,000,000
VN120195 Johor Corporation 3.840 14 June 2022 1,800,000,000
VN120202 Perbadanan
Tabung
Pendidikan
Tinggi Nasional
3.850
15 June 2022
2,500,000,000
GL150001 Malaysia
Government
Investment
Issue
4.194
15 July 2022
10,000,000,000
MO120001 Malaysia
Government
Bond
3.418
15 August 2022
10,500,000,000
ML150002 Malaysia
Government
Bond
3.795
30 September 2022
11,000,000,000
VI170370 Cagamas Berhad 4.230 03 November 2022 840,000,000
GO120037 Malaysia
Government
Investment
Issue
3.699
15 November 2022
8,500,000,000
VN120393 Turus Pesawat
Sdn Bhd
3.740
18 November 2022
500,000,000
VN130068 Turus Pesawat
Sdn Bhd
3.770
03 February 2023
500,000,000
MN130003 Malaysia
Government
Bond
3.480
15 March 2023
11,420,000,000
GL160001 Malaysia
Government
Investment
Issue
4.390
07 July 2023
10,500,000,000
DS081080 Khazanah
Nasional Berhad
0.000
14 August 2023
2,000,000,000
ML160001 Malaysia
Government
Bond
3.800
17 August 2023
10,000,000,000
VN130259 Cagamas Berhad 4.300 27 October 2023 645,000,000
GO130033 Malaysia
Government
Investment
Issue
3.493
31 October 2023
4,000,000,000
VK170038 GovCo Holdings
Bhd
4.290
22 February 2024
625,000,000
(Forward)
5
Code Issuer
Coupon
% Final Maturity
Notional
Amount (RM)
VN140090 Perbadanan
Tabung
Pendidikan
Tinggi Nasional
4.670
28 March 2024
1,800,000,000
GO130071 Malaysia
Government
Investment
Issue
4.444
22 May 2024
12,500,000,000
MO140001 Malaysia
Government
Bond
4.181
15 July 2024
11,020,000,000
GL170002 Malaysia
Government
Investment
Issue
4.045
15 August 2024
12,000,000,000
ML170002 Malaysia
Government
Bond
4.059
30 September 2024
11,000,000,000
VP120394 Turus Pesawat
Sdn Bhd
3.930
19 November 2024
500,000,000
VN150103 Jambatan Kedua
Sdn Bhd
4.300
28 May 2025
1,300,000,000
MY050003 Malaysia
Government
Bond
4.837
15 July 2025
3,000,000,000
MO150001 Malaysia
Government
Bond
3.955
15 September 2025
13,672,200,000
VN150193 Pengurusan Air
SPV Berhad
4.630
26 September 2025
860,000,000
GO150004 Malaysia
Government
Investment
Issue
3.990
15 October 2025
10,500,000,000
VN160022 Danga Capital
Bhd
4.600
23 February 2026
1,500,000,000
MS110003 Malaysia
Government
Bond
4.392
15 April 2026
10,574,330,000
VN160235 Jambatan Kedua
Sdn Bhd
4.200
28 July 2026
1,000,000,000
VS110260 Prasarana
Malaysia Bhd
4.350
04 August 2026
1,200,000,000
MX060002 Malaysia
Government
Bond
4.709
15 September 2026
3,110,000,000
(Forward)
6
Code Issuer
Coupon
%
Final
Maturity
Notional
Amount (RM)
GO160003 Malaysia
Government
Investment
Issue
4.070
30 September 2026
10,500,000,000
VN160330 Bank
Pembangunan
Malaysia
Berhad
4.500
04 November 2026
850,000,000
MO160003 Malaysia
Government
Bond
3.900
30 November 2026
9,000,000,000
VN170037 GovCo Holdings
Bhd
4.550
22 February 2027
500,000,000
MS120002 Malaysia
Government
Bond
3.892
15 March 2027
5,500,000,000
MX070003 Malaysia
Government
Bond
3.502
31 May 2027
6,000,000,000
GS120059 Malaysia
Government
Investment Issue
3.899
15 June 2027
5,000,000,000
GO170001 Malaysia
Government
Investment Issue
4.258
26 July 2027
11,000,000,000
VN170245 Danga Capital
Bhd
4.520
06 September 2027
1,500,000,000
MO170004 Malaysia
Government
Bond
3.899
16 November 2027
8,000,000,000
VS120395 Turus Pesawat
Sdn Bhd
4.120
19 November 2027
750,000,000
MS130005 Malaysia
Government
Bond
3.733
15 June 2028
5,000,000,000
GT130001 Malaysia
Government
Investment Issue
3.871
08 August 2028
3,000,000,000
MX080003 Malaysia
Government
Bond
5.248
15 September 2028
5,040,000,000
GS130072 Malaysia
Government
Investment Issue
4.943
06 December 2028
5,000,000,000
VS140224 Bank
Pembangunan
Malaysia Berhad
4.750
12 September 2029
900,000,000
(Forward)
7
Code Issuer
Coupon
%
Final
Maturity
Notional
Amount (RM)
VX090825 Prasarana
Malaysia Bhd
5.070
28 September 2029
1,500,000,000
VS150002 Danga Capital
Bhd
4.880
29 January 2030
1,500,000,000
VS150043 Prasarana
Malaysia Bhd
4.640
22 March 2030
1,100,000,000
MX100003 Malaysia
Government
Bond
4.498
15 April 2030
12,770,000,000
VS150104 Jambatan Kedua
Sdn Bhd
4.520
28 May 2030
700,000,000
GT150003 Malaysia
Government
Investment
Issue
4.245
30 September 2030
7,000,000,000
VS160151 GovCo Holdings
Bhd
4.730
06 June 2031
550,000,000
MX110004 Malaysia
Government
Bond
4.232
30 June 2031
12,750,000,000
VS170036 GovCo Holdings
Bhd
4.950
20 February 2032
1,250,000,000
VS170042 Bank
Pembangunan
Malaysia
Berhad
4.980
02 March 2032
700,000,000
VS170113 Perbadanan
Tabung
Pendidikan
Tinggi Nasional
4.860
12 March 2032
855,000,000
VS170119 DanaInfra
Nasional Berhad
4.950
19 March 2032
1,065,000,000
MX120004 Malaysia
Government
Bond
4.127
15 April 2032
5,500,000,000
VS170237 Perbadanan
Tabung
Pendidikan
Tinggi Nasional
4.930
17 August 2032
1,300,000,000
VX120396 Turus Pesawat
Sdn Bhd
4.360
19 November 2032
1,650,000,000
MX130004 Malaysia
Government
Bond
3.844
15 April 2033
10,500,000,000
GX130068 Malaysia
Government
Investment
Issue
4.582
30 August 2033
12,000,000,000
(Forward)
8
Code Issuer
Coupon
%
Final
Maturity
Notional
Amount (RM)
VX140225 Bank
Pembangunan
Malaysia Berhad
4.850
12 September 2034
900,000,000
MY150004 Malaysia
Government
Bond
4.254
31 May 2035
7,161,000,000
GX150006 Malaysia
Government
Investment Issue
4.786
31 October 2035
7,000,000,000
VX160280 Lembaga
Pembiayaan
Perumahan
Sektor Awam
4.620
19 September 2036
900,000,000
MX170003 Malaysia
Government
Bond
4.762
07 April 2037
5,500,000,000
GX170005 Malaysia
Government
Investment
Issue
4.755
04 August 2037
5,000,000,000
VX170249 Lembaga
Pembiayaan
Perumahan
Sektor Awam
5.050
07 September 2037
1,000,000,000
VZ160031 Prasarana
Malaysia Bhd
5.070
26 February 2041
755,000,000
VZ160130 DanaInfra
Nasional Berhad
4.850
03 May 2041
1,000,000,000
VZ160233 Perbadanan
Tabung
Pendidikan
Tinggi Nasional
4.850
26 July 2041
1,500,000,000
VZ160237 Jambatan Kedua
Sdn Bhd
4.860
26 July 2041
900,000,000
VZ160322 DanaInfra
Nasional Berhad
4.780
18 October 2041
1,000,000,000
MZ130007 Malaysia
Government
Bond
4.935
30 September 2043
6,500,000,000
MZ160002 Malaysia
Government
Bond
4.736
15 March 2046
10,500,000,000
VZ160131 DanaInfra
Nasional Berhad
5.020
03 May 2046
1,000,000,000
VZ160281 Lembaga
Pembiayaan
Perumahan
Sektor Awam
4.900
21 September 2046
800,000,000
(Forward)
9
Code Issuer
Coupon
%
Final
Maturity
Notional
Amount (RM)
VZ160323 DanaInfra
Nasional Berhad
4.950
19 October 2046
1,000,000,000
GZ170004 Malaysia
Government
Investment Issue
4.895
08 May 2047
4,500,000,000
VZ170250 Lembaga
Pembiayaan
Perumahan
Sektor Awam
5.260
06 September 2047
1,000,000,000
(Source: Markit Indices Limited)
Duration The Fund was established on 12 July 2005 and shall exist for as long as it appears to
the Manager and the Trustee that it is in the interests of the unitholders for it to
continue. In some circumstances, the unitholders+* can resolve at a meeting to
terminate the Fund.
Performance
Benchmark
Markit iBoxx® ABF Malaysia Bond Index
Income
Distribution
Policy
Income distribution (if any) will be paid semi-annually.
Breakdown
of Unit
Holdings by
Size
For the financial year under review, the size of the Fund stood at 1,265,421,800 units.
Size of holding As at
31 December 2017
As at
31 December 2016
No of
units held
Number of
unitholders
No of
units held
Number of
unitholders
Less than 100 300 6 300 7
100 – 1,000 13,800 27 9,900 22
1,001 -10,000 53,500 12 54,700 13
10,001 – 100,000
81,000
4
109,600 4
100,001 to less than
5% of issue units
53,365,330
5
55,039,430 5
5% and above of
issue units
1,211,907,870 1
1,265,207,870 1
Fund Performance Data
Portfolio
Composition
Details of portfolio composition of the Fund for the financial years as at 31 December
are as follows:
(Forward)
10
FY
2017
%
FY
2016
%
FY
2015
%
Corporate bonds - - 0.76
Malaysian Government Securities 95.33 95.16 90.57
Quasi-Government bonds 4.36 4.41 6.46
Cash and others 0.31 0.43 2.21
Total 100.00 100.00 100.00
Note: The abovementioned percentages are calculated based on total net asset value.
Performance
Details
Performance details of the Fund for the financial years ended 31 December are as
follows:
FY
2017
FY
2016
FY
2015
Net asset value (RM) 1,450,591,084 1,442,324,912 1,341,876,193*
Units in circulation 1,265,421,800 1,320,421,800 1,265,421,800*
Net asset value per unit (RM) 1.1463 1.0923 1.0604*
Highest net asset value per unit
(RM)
1.1463
1.1224
1.0655*
Lowest net asset value per unit
(RM)
1.0921
1.0599
1.0323*
Closing quoted price (RM/unit) 1.1400 1.1100 1.0520*
Highest quoted price (RM/unit) 1.1400 1.1240 1.0680*
Lowest quoted price (RM/unit) 1.1000 1.0520 1.0300
Benchmark performance (%) 5.06 3.46 4.12
Total return (%)(1)
4.94 3.01 3.74
- Capital growth (%) 4.94 3.01 2.12
- Income distribution (%) - - 1.62
Gross distribution (sen per unit) - - 1.68
Net distribution (sen per unit) - - 1.68
Distribution yield (%)(2)
- - 1.60
Management expense ratio (%)(3)
0.17 0.18 0.16
Portfolio turnover ratio (times)(4)
0.23 0.47 0.74
* Above price and net asset value per unit are shown as ex-distribution.
Note:
(1) Total return is the annualised return of the Fund for the respective financial years
computed based on the net asset value per unit and net of all fees.
(2) Distribution yield is calculated based on the total distribution for the respective
financial years divided by the closing quoted price.
(3) Management expense ratio (“MER”) is calculated based on the total fees and
expenses incurred by the Fund divided by the average fund size calculated on a daily
basis. The MER decreased by 0.01% as compared to 0.18% per annum for the
financial year ended 31 December 2016 mainly due to decrease in expense.
(4) Portfolio turnover ratio (“PTR”) is calculated based on the average of the total
acquisitions and total disposals of investment securities of the Fund divided by the
average fund size calculated on a daily basis. The PTR decreased by 0.24 times
11
(51.1%) as compared to 0.47 times for the financial year ended 31 December 2016
mainly due to decrease in investing activties.
Average Total Return (as at 31 December 2017)
ABFMY1(a)
%
iBoxx Index(b)
%
One year 4.94 5.06
Three years 3.89 4.29
Five years 3.20 3.48
Ten years 3.69 3.99
Annual Total Return
Financial Years Ended
(31 December)
ABFMY1(a)
%
iBoxx Index(b)
%
2017 4.94 5.06
2016 3.01 3.46
2015 3.74 4.12
2014 3.98 3.79
2013 0.36 0.85
(a) Source: Novagni Analytics and Advisory Sdn Bhd.
(b) iBoxx ABF Malaysia Index (“iBoxx Index”) (Obtainable from www.aminvest.com)
The Fund performance is calculated based on the net asset value per unit of the Fund.
Average total return of the Fund and its benchmark for a period is computed based on
the absolute return for that period annualised over one year.
Note: Past performance is not necessarily indicative of future performance and that
unit prices and investment returns may go down, as well as up.
Fund
Performance
For the financial year under review, the Fund registered a return of 4.94% which was
entirely capital growth in nature.
Thus, the Fund’s return of 4.94% has underperformed the benchmark’s return of 5.06%
by 0.12%.
As compared with the financial year ended 31 December 2016, the net asset value
(“NAV”) per unit of the Fund increased by 4.94% from RM1.0923 to RM1.1463, while
units in circulation while units in circulations decreased by 4.17% from 1,320,421,800
units to 1,265,421,800 units.
The closing price quoted at Bursa Malaysia of the Fund increased by 2.70% from
RM1.1100 to RM1.1400.
The line chart below shows the comparison between the annual performance of
ABFMY1 and its benchmark, iBoxx® Index, for the financial years ended 31 December.
12
Note: Past performance is not necessarily indicative of future performance and that
unit prices and investment returns may go down, as well as up.
Has the Fund
achieved its
objective?
For the financial year under review, the Fund has met its objective i.e. passively
managed against the given benchmark.
Strategies
and Policies
Employed
For the financial year under review, the Fund used a passive strategy whereby the
Manager aims, by way of representative sampling, to achieve a return on the Fund
Assets that closely tracks the returns of the benchmark index.
Portfolio
Structure
This table below is the asset allocation of the Fund for the financial years under review.
As at
31-12-2017
%
As at
31-12-2016
%
Changes
%
Malaysian Government Securities 95.33 95.16 0.17
Quasi-Government bonds 4.36 4.41 -0.05
Cash and others 0.31 0.43 -0.12
Total 100.00 100.00
There has been no significant change to the asset allocation since the last reporting
period.
Distribution/
unit splits
There was no income distribution and unit split declared for the financial year under
review.
State of
Affairs of
the Fund
There has been neither significant change to the state of affairs of the Fund nor any
circumstances that materially affect any interests of the unit holders during the
financial year under review.
13
Rebates
and Soft
Commission
It is our policy to pay all rebates to the Fund. Soft commission received from
brokers/dealers are retained by the Manager only if the goods and services provided are
of demonstrable benefit to unitholders of the Fund.
During the financial year under review, the Manager had received on behalf of the
Fund, soft commissions in the form of fundamental database, financial wire services,
technical analysis software and stock quotation system incidental to investment
management of the Fund. These soft commissions received by the Manager are deem
to be beneficial to the unitholders of the Fund.
Market
Review
After increasing by USD 0.2b and USD 0.5b in October 2017 and November
2017respectively, Malaysia’s foreign reserves fell by USD3.7b to USD 94.6b in
December. This was the lowest reserve level the start of the year and the decline was
spurred by considerable foreign outflows. The current level of reserves is sufficient to
cover 1.2 times of short-term external debt and 8.3 months of retained imports. In
comparison Malaysia’s foreign reserves stood at USD 95.3bn at end-December 2015.
On the trade front exports & imports rebounded 11.2% year-on-year (YoY). Bank
Negara Malaysia (“BNM”) left the policy rate unchanged at 3.00% in its latest
meeting, with a more upbeat statement on the external sector and higher inflation
expectation for 2017. The general expectation is that BNM will leave the rate
unchanged in 2017, against the backdrop of expected Fed rate hike(s) during the year.
Industrial Production Index for Nov 2016 jumped 6.2% YoY (expectation 5.5% YoY,
Oct 4.2% YoY) led by Manufacturing 6.5% (4.2%), Electricity 9.7% (6.9% YoY) and
mining also showed improvement at 4.7% (3.5% YoY). 3 to 15 year MGS yields
closed lower whilst 20-30 year MGS yields increased. The short to medium MGS
yields shifted lower on the back of returned foreign demand. Foreign buying was seen
in the day before the yield curve rallied across the 3-15 year tenures. January 2017 saw
the reopening of 3 year GII (issuance size RM 3.5b, BTC 1.789) 15 year MGS
(issuance size RM4.0b, BTC 2.503x) and a new issuance of 10.5 year GII (issuance
size RM 4b, BTC 3.41x). Overall, 3-year, 5-year, 7-year, 10-year, 15-year, 20-year and
30-year close at 3.38%, 3.61%, 3.97%, 4.15%, 4.55%, 4.70% and 4.72% respectively.
Malaysia’s 4Q16 GDP growth was printed at 4.5% vs consensus of 4.4%, in line with
BNM forecasts of 4.0-4.5%. The growth came on the back of moderate rebound in
exports/imports and resilient domestic demand in the 4th quarter. 2016 budget deficits
met the 3.1% of Gross Domestic Product (“GDP”) target allaying concerns on the
sovereign’s ratings. Further, despite the persistent weakness in the MYR, Malaysia
external reserves remained resilient; it stood unchanged from end-January 2017 at
US$95b in mid-February 2017. The January Consumer Price Index (“CPI”) print came
in much higher than expected today at 3.2%, vs consensus estimate of 2.7%. The
upside surprise was driven by 2 factors: 1) domestic fuel price increases, and 2) food
prices due to bad weather and also lagged impact of cooking oil subsidy removals.
Regardless of the tick in the CPI print, the BNM is likely to maintain the Overnight
Policy Rate (“OPR”) rate at 3.0% in 2017 as the BNM is reckoned to tolerate the cost-
push inflationary pressure without having to tighten its monetary policy. Meanwhile,
MYR currency weakness would constraint BNM from further easing. During the early
part of the month, the Malaysia Government Securities (“MGS”) curve bull-steepened
with yields on the short-end coming off more than the long-end. However, toward the
mid to later part of January 2017, the MGS bull-flattened tracing the movement in the
US treasuries curve. USD strength retreats and market regains confidence toward
Emerging Market (EM) bonds on Trump’s endorsement of “One China Policy”. This
trigger partial reversal of Trump’s reflationary bets. The rally in the government bond
market is contributed by both the foreigners and local market players. Strong buying
14
was particularly seen in the 7y to 15y part of the MGS curve while the new 7y GII 8/24
and 10y GII 7/27 continued to be well-bid, strengthening significantly up to 10 bps.
February 2017 saw the issuance of new 7y GII 8/24 (issuance size RM4.0b, BTC
3.123) and reopening of 30y MGS 3/46 (issuance size RM2.0b, BTC 2.562). Both the
tenders garnered strong support from local market players and have been trading very
well in the secondary market. Overall, 3-year, 5-year, 7-year, 10-year, 15-year, 20-year
and 30-year close at 3.35%, 3.735%, 3.93%, 4.07%, 4.475%, 4.645% and 4.71%
respectively.
During the month of March, BNM released the 2016 Annual Report where the central
bank projected Malaysia’s GDP to grow at 4.3% - 4.8% for 2017. The higher growth
projection is based on a rebound in exports as well as resilient domestic demand.
Inflation, however, is expected to spike upwards to 3% - 4% (2016: 2.1%) due mainly
to cost-driven factors i.e. pass-through impact from an elevated retail oil prices. In the
same report, BNM also projects Malaysia’s current account surplus to remain positive
at RM17.4b (2016: RM25.2b). Malaysia’s CPI accelerated to 4.5% in February
(January: 3.2%) driven primarily by higher food prices (4.3%) and transportation
(17.9%) which combined, contributed 3.6% to overall CPI gain. Although the CPI
came in significantly higher than market expectations of 3.9%, it was expected as the
current average petrol price has surged 39% YoY. Amidst the continued outflow from
the Bond market, BNM reported that Malaysia’s foreign reserves held steady at
USD95b as at end February. The current level of reserves is equivalent to 8.5 months
of retained imports and 1.1 times of short-term external debt. Meanwhile, as at end
2016, the top five Foreign Direct Investments (“FDI”) contributor was Singapore
(RM115b), Japan (RM70b), China & HK (RM53b), Netherlands (RM48b) and United
States (RM36b). In 2016, out of the RM207.9b approved investments, the Services
sector command 68% while the Manufacturing sector command a lower share of 28%.
The bulk of investments in the Manufacturing sector came from Petroleum Products,
E&E Products, Basic Metal Products and Transport Equipment while the usual Real
Estate, Financial Services, Utilities and Distributive Trade dominate the Services
Sector. Finally, the banking sector’s loan growth for February slipped slightly to 5.3%
YoY from 5.6% YoY in the previous month. The moderation in February’s loan
growth was caused by a slower Household loan growth of +5.1% whilst business loan
was unchanged at 5.4%. Trading volume in the MGS market spiked to RM86.5b from
RM59.2b in the previous month. The MGS market went through a period of volatility
both pre and post FOMC’s decision to hike the US Federal Fund Rate by 25bps.
Overall, the MGS yield curve shifted higher especially at the short-end as market
priced in two further rate hikes by the FOMC for 2017. As at end March, 3-year, 5-
year, 7-year, 10-year, 15-year, 20-year and 30-year close at 3.63%, 3.82%, 4.01%,
4.17%, 4.54%, 4.65% and 4.78% respectively. In the primary market, there were three
government bond auctions as follows:
• RM4.0b New 5-year MGS 3/22 which garnered BTC ratio of 1.538 times at
average yield of 3.882%.
• RM4.0b 15-year Re-opening of the GII 8/33 which drew a BTC ratio of 1.897
times at average yield of 4.696%.
• RM4.0b New 7-year MGS 9/24 which drew a BTC of 2.064 times at average yield
of 4.059%.
Malaysian CPI crossed 5% in March 2017 at 5.1% YoY (Feb 4.5%). While February
2017 numbers were tempered by the base effect from Chinese New Year, March
numbers finally show the impact of the two 20 sen price hikes on RON95 hike in
January and February, which brings inflation up from 1.8% YoY in December 2016
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(Jan: 3.2%, Feb: 4.5%) to well past 5% on primary effects alone. Incidentally petrol
prices remained unchanged in Mar 2017 with RON95 at RM2.30/litre and RON97 at
RM2.60/litre, but Diesel price was hiked 5 sen to RM2.20/litre. Exports continued to
pick up to 26.5% YoY in February, its quickest pace in almost seven years, partly on
the back of a recovery in global demand and partly a low base effect. We envisage
exports growth to normalise in subsequent months and rise at a more robust pace of 6%
in 2017, from +1.1% in 2016 on account of:
1. Recovery in demand for commodity products, aided by higher prices;
2. Pick-up in global semiconductor sales since late-2016, translating to higher
electrical & electronics (E&E) exports;
3. Improving global trade outlook on the back of stronger global growth prospects.
Regulated short-selling of government bonds will be liberalised by widening the access
to all domestic investors. This aims to boost liquidity and facilitate effective hedging of
interest rate risks. BNM also announced the relaxation of onshore hedging by allowing
registered non-bank entities fully and actively hedging their FX exposures. This is a
big step up from a dynamic hedge ratio of 25% previously.Trading volume in the MGS
market fell to RM 64.5b from RM91.0b in the previous month. Over the month BNM
announced new initiatives which increased hedging flexibility for foreign currency
exposure and expanded the scope for short selling, applicable to both government and
corporate bonds. Overall, the MGS yield curve shifted lower especially at the short-end
as the market reacted favorably to the new BNM regulations and the strong MYR in
April. As at end April, 3-year, 5-year, 7-year, 10-year, 15-year, 20-year and 30-year
close at 3.40%, 3.70%, 3.86%, 4.07%, 4.37%, 4.70% and 4.76% respectively. In the
primary market, there were three government bond auctions as follows:
• RM2.0b New 20-year MGS 4/37 which garnered BTC ratio of 1.59 times at
average yield of 4.76%.
• RM4.0b New 5-year GII 4/22 which drew a BTC ratio of 2.71 times at average
yield of 3.95%.
• RM2.5b 15-year reopening of the MGS 4/33 which drew a BTC of 2.06 times at
average yield of 4.50%.
Malaysia’s real GDP growth recorded a stronger growth of 5.6% YoY in 1Q17, up
from +4.5% in 4Q16, on the back of stronger external activities and domestic demand.
Going forward, it is expected that the strong growth of the external sector to continue
spilling over to the domestic side in the quarters ahead. However, real GDP growth
may moderate in 2Q and 2H 2017, as the strong export growth tapers off. Meanwhile,
the headline inflation rate slowed to 4.4% YOY in April 2017, from +5.1% in March
2017. This is mainly due to a slowdown in transportation costs amid lower fuel prices
in April. The current account surplus in the balance of payments narrowed to
MYR5.3bn in 1Q17, due to a smaller surplus in the merchandise trade balance. It is
expected to narrow further in 2017 amid strong import outlook. The external reserves
increased to a 5-month high of USD96.1b as at end April (end March: USD95.4b).
Foreigners were net buyers of local equities for a 4th consecutive month in April and
that foreign holding to total local debt rose by RM6.77b to RM185.0b which makes up
15.4% of total debt outstanding. The MGS curve bull-flattened along the 5y/10y/20y
and lowered by 9 – 19 bps as compared to the prior month, on continued strong buying
interests from both the local and foreign market players. The buying interest was
mainly spurred by the appreciation of MYR against the USD as the USD/MYR
dropped from 4.43 levels to below 4.30 levels. The optimism for our local bond market
is also driven by high 1Qtr 2017 GDP print at 5.6% YOY (4Q2016: 4.5%) on the back
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of the pick-up on domestic demand and export growth. This prompted some
economists to revise 2017 growth forecasts to above 5.0%. Regardless, BNM still
forecasted our 2017 GDP growth numbers to fall within 4.3 – 4.8%. As at end May, 3-
year, 5-year, 7-year, 10-year, 15-year, 20-year and 30-year close at 3.31%, 3.57%,
3.82%, 3.88%, 4.33%, 4.57% and 4.77% respectively. In the primary market, there
were three government bond auctions as follows:
• RM2.5b New 30y GII 5/47 which garnered a BTC ratio of 2.393x at an average
yield of 4.895%.
• RM3.0b New 10y MGS 11/27 which garnered a BTC ratio of 3.340x at an average
yield of 3.899%.
• RM3.0b New 7y GII 8/24 which garnered a BTC ratio of 2.481x at an average
yield of 3.926%.
In May, Malaysia’s CPI moderated to 3.9% YoY (April: 4.4%), the third consecutive
month of decline. The biggest driver of the lower May inflation print was transport
which contributed 1.6% to overall inflation (versus 2.0% in April). Year-to-date,
inflation averaged 4.3%. Meanwhile, BNM added another USD1.9b to its foreign
reserves which totals USD98.7b as at mid-June. The reserves are equivalent to 8.1
months of retained imports and provide a 1.1 times coverage of short-term external
debt. The increase in reserves was aided by a reversal of foreign flows in Malaysia’s
bond market as foreign funds bought +RM10.1b in May and +RM6.8b in April
respectively. This followed the huge sell off which started in November 2016 and
lasted till March 2017 totalling -RM62.7b. The reversal in sentiment came after BNM’s
latest liberalisation of bond and foreign exchange hedging measures, impressive
1Q2017 GDP figures, and a softer US dollar outlook. In the same month, confirmation
of Malaysia’s better outlook came from S&P which reaffirmed Malaysia at A-/Sta on
expectations of continued prudence by the Government in undertaking Malaysia’s
economic and budgetary policies. Nevertheless, S&P did raise concerns on the
country’s high household debt as well as uncertainty in refinancing cost amidst
negative news flow from 1MDB. Finally, the banking sector’s loan growth for May
slipped to 5.5% YoY from 6.1% YoY in the previous month. The moderation in May’s
loan growth was caused by a slower non-household loan growth of +6.1% YoY (Apr:
7.5%) whilst household loan maintained its pace at 5.1% YoY. Trading volume in the
MGS market dropped to RM45.0b from RM63.7b in the previous month. The MGS
market bearish steepened towards the end of the month post FOMC’s decision to hike
the US Federal Fund Rate by another 25bps and amidst hawkish central bank talk in the
US and Europe. As at end June, 3-year, 5-year, 7-year, 10-year, 15-year, 20-year and
30-year close at 3.48%, 3.68%, 3.89%, 3.92%, 4.35%, 4.58% and 4.79% respectively.
In the primary market, there were three government bond auctions as follows:
RM4.0b 7-year Re-opening of the GII 8/24 which garnered BTC ratio of 2.48
times at average yield of 3.926%.
RM2.5b 20-year Re-opening of the MGS 4/37 which drew a BTC ratio of 1.70
times at average yield of 4.560%.
RM3.0b 10-year Re-opening of the GII 7/27 which drew a BTC of 2.54 times at
average yield of 4.013%.
In June, CPI moderated to 3.6% YoY (May: 3.9%, consensus estimate: 3.9%), the third
consecutive month of decline. Core inflation for June came in at 2.6% YoY, slightly
below May’s reading of 2.6% and within BNM’s comfort range of 2.3% -2.5%.
Transport costs were once again a key driver of CPI, accounting for over 20% of the
rise. Meanwhile, BNM added USD 0.2b to its foreign reserves which totals USD99.1b
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as at mid-July, up from USD 98.9b at end July. The reserves are equivalent to 7.9
months of retained imports and provide a 1.1 times coverage of short-term external
debt. June saw a slight outflow of foreign funds to the tune of MYR 400m after
significant foreign inflows of RM10.1b in May and RM6.8b in April respectively.
Malaysia’s May exports figures remain strong, growing more than 30% YoY. Trade
surplus continue to be positive albeit lower. Finally, the banking sector’s loan growth
for June increased to 5.7% YoY from 5.5% YoY in the previous month, the pick-up in
loans growth was attributed to faster growth in business loans. The banking system’s
asset quality continued to be strong with system-wide net NPL ratio at 1.2%.
Trading volume in the MGS/GII market dropped to RM41.7b in July from RM50.0b in
the previous month. Yield movements were unevenly distributed across the yield
curve, with the 5 and 7 year MGS yields climbing up 5 bps whilst the rest of the curve
was broadly unchanged. As at end July, 3-year, 5-year, 7-year, 10-year, 15-year, 20-
year and 30-year close at 3.48%, 3.73%, 3.90%, 3.98%, 4.36%, 4.58% and 4.79%
respectively. In the primary market, there were three government bond auctions as
follows:
• RM3.0b 7-year Re-opening of the MGS 9/24 which garnered BTC ratio of
2.877 times at average yield of 3.919%.
• RM2.0b 30-year Re-opening of the GII 5/47 which drew a BTC ratio of 1.915
times at average yield of 4.926%.
• RM3.0b 10-year Re-opening of the MGS 11/27 which drew a BTC of 1.68
times at average yield of 3.978%.
Export growth slowed in June to 10% YoY, mainly on the back of base effects and a
distortive festive period. Shipments of both E&E and non-E&E categories saw growth
easing in June. On a quarterly basis, exports remain robust at 20.6% YoY in 2Q17,
sustaining its pace from the previous quarter. Malaysia’s foreign reserves climbed past
the USD100bn mark for the first time since 2015, edging higher to USD100.4bn
(+USD1bn m-o-m) which is sufficient to finance 7.9 months of retained imports and
1.1x of short-term external debt. Furthermore, Malaysia’s real GDP recorded a stronger
growth of 5.8% YoY in 2Q17, up from +5.6% in 1Q, on the back of stronger external
activities and private consumption. Malaysia’s real GDP growth is expected to grow at
a stronger pace moving forward as compared to the prior year. Meanwhile, the current
account surplus in Malaysia’s balance of payments widened to MYR9.6bn in 2Q17,
due to a larger surplus in the merchandise trade balance. However, this surplus is
expected to narrow amid a stronger import growth outlook that would likely outpace
the increase in exports and a higher deficit in the services and income accounts. On the
other hand, headline inflation rate slowed further to 3.2% YoY in July, from +3.6% in
June. This was mainly due to a slowdown in transportation costs amid lower fuel
prices, and a fading low base effect during the month. On rating actions, Fitch affirmed
Malaysia’s A- rating with a stable outlook on the back of strong GDP growth,
sustained current account surpluses, mitigated by higher government debt compared to
its A-rated peers and sizeable contingent liabilities. Trading activities for the govvies
were lackluster in the beginning of the month, however it picked up substantially
toward the end of the month as MYR strengthened. Most of the trades were centered
on the shorter end < 3 years and on the belly of the curve. There was also an
expectation that the 10y MGS 11/27 will be included into JP Morgan Global Bond EM
Index, further spurring some rallies in the govvies. Also, tracing the downward yield
movement of US treasuries, the demand for our local govvies increased mainly due to
the heightened geopolitical tensions between North Korea and the US. The trading
flows were driven by both foreigners and local market players. They have been
18
lengthening the portfolio duration by disposing the short-end and buying into the long-
end. Foreigners have been selling the shorter tenured MGS and buying into longer
tenured MGS specifically the 10-year. On net basis, government debt saw an outflow
of MYR1.46b where the foreign ownership declined from 41.2% to 40.1%. Total
foreign holding in government debt is 26.5% as opposed to 27.2% in the prior month.
As at end Aug, 3-year, 5-year, 7-year, 10-year, 15-year, 20-year and 30-year close at
3.365%, 3.58%, 3.855%, 3.90%, 4.315%, 4.54% and 4.74% respectively. In the
primary market, there were three government bond auctions as follows:
• RM2.5b 20-year New GII 8/37 which garnered BTC ratio of 1.784 times at
average yield of 4.755%.
• RM3.5b 3-year New MGS 2/21 which drew a BTC ratio of 1.706 times at
average yield of 3.441%.
• RM3.5b 7-year Re-opening of the GII 8/24 which drew a BTC of 2.104 times at
average yield of 3.975%.
Malaysia’s August CPI increased to 3.7% YoY versus market expectation of 3.4% and
3.2% in the previous month. The primary driver for the increase was transportation cost
from higher fuel prices and food & non-alcoholic beverages (“F&B”) prices. On the
trade front, Malaysia's export growth in July exceeded expectations, rising 30.9% from
a year earlier, owing to higher shipments of manufactured products and mining goods.
The pace of expansion beat the 23.1% rise forecasted by consensus and tripled the 10%
growth posted in June. Shipments of manufactured goods, which accounted for more
than four-fifths of Malaysia's total exports, were up 32.6% from a year earlier in July.
Most of the manufactured goods were electrical and electronic products. In September,
BNM seventh MPC meeting yielded no change in the OPR which remains at 3.00%.
BNM’s decision to hold rates came widely expected. In the accompanying MPC
statement, BNM remains upbeat on the improving global economy while emphasizing
that the domestic economy continued to be underpinned by private spending and
exports. BNM also guided that GDP growth in 2017 will be stronger than earlier
expected and while inflation has remained elevated, repeated that underlying inflation
pressures is expected to remain contained. Lastly, BNM reiterate that its current stance
of monetary policy remains accommodative. Meanwhile, BNM added another
USD0.3b to its foreign reserves which totals USD100.8b as at mid-September. The
reserves are equivalent to 7.7 months of retained imports and provide a 1.1 times
coverage of short-term external debt. Finally, the banking sector’s loan growth for
August increased to 5.8% YoY from 5.6% YoY in the previous month. The marginally
stronger growth was attributed to business loans which increased by 6.8% while
household loan growth remained steady at 5.0%. Trading volume in the MGS market
increased to RM64.7b from RM56.8b in the previous month. At month end, the MGS
market bearish steepened especially at the longer end of the curve. The cautious
sentiment came about post the FOMC’s decision to implement the Balance Sheet
Reduction (“BSR”) program starting October 2017 and an unchanged Dot Plot chart
which indicated one more rate hike for 2017. As at end September, 3-year, 5-year, 7-
year, 10-year, 15-year, 20-year and 30-year close at 3.33%, 3.65%, 3.84%, 3.91%,
4.31%, 4.60% and 4.89% respectively. In the primary market, there were two
government bond auctions as follows:
• RM4.0b 5-year Re-opening of the MGS 3/22 which garnered BTC ratio of 1.90
times at average yield of 3.501%.
• RM4.0b 15-year Re-opening of the GII 8/33 which drew a BTC ratio of 1.73
times at average yield of 4.579%.
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In October 2017, the Malaysian government announced its 2018 budget, following are
the highlights:
• 2017 GDP is revised up to 5.2-5.7% (from 4.3-4.8%), on the back of better
performance in the agriculture, manufacturing and services sectors.
• 2018 GDP is forecast to expand by 5.0-5.5%, driven by the manufacturing,
construction and services sectors.
• The government remains committed to a gradual fiscal consolidation, with the
deficit target moderating to 2.8% in 2018 (3.0% in 2017).
• Exports growth expected to jump 16.6% to RM917.5b for 2017, supported by
strong demand in manufactured goods and commodities. This would normalize
to 3.4% in 2018.
• Current account surplus estimated to be sustained at RM32.3b or 2.5% of GNI
for 2017 and forecast to be marginally higher at RM32.9b or 2.3% of GNI for
2018.
• Revenue growth of 6.5% (6.1% in 2017) balanced by a 6.5% increase in
operating expenditure, while development expenditure remains unchanged.
• The 2018 Budget is based on an oil price assumption of USD52 per barrel
(USD50 in 2017 and current price of ≈USD59).
• GST collection is projected to increase to RM43.8b (RM41.5b in 2017).
• Inflation is expected to be benign at 2.5-3.5% in 2018 (3.0-4.0% in 2017).
• 2% point reduction in RM20,000-70,000 personal income tax band, translating
to about RM1.5b of foregone revenue.
In September, CPI increased to 4.3% YoY in line with market expectation of 4.3% and
higher than 3.7% in the previous month. The primary drivers for the increase were
transportation costs (up 15.8% YoY) and food & non-alcoholic beverage prices (up
4.6% YoY. Core inflation remained stable at 2.4% YoY September. On the trade front,
Malaysia's export growth in August exceeded expectations, rising 21.5% YoY to MYR
82.3b vesus forecast growth of 19.2% Yoy. Export grew due to higher shipments of
manufactured products and LNG exports. The trade surplus in August widened to
MYR 9.9b from July's MYR 8.0b. Meanwhile, BNM added another USD0.2b to its
foreign reserves which totals USD101.4b as at mid-October. The reserves are
equivalent to 7.5 months of retained imports and provide a 1.1 times coverage of short-
term external debt. Overall trading volume in the MGS market declined to RM38.6b
from RM64.7b in the previous month. MGS yields rose across all tenures following the
softer weaker MYR and the rise in US Treasury yields as market odds for a year end
rate hike in the US intensified. The sell-off in MGS occurred primarily in the last week
of October with yields rising as much as 15bps as the yield curve steepened on the long
end. As at end October, 3-year, 5-year, 7-year, 10-year, 15-year, 20-year and 30-year
close at 3.40%, 3.74%, 3.95%, 3.91%, 4.44%, 4.73% and 5.02% respectively. In the
primary market, there were three government bond auctions as follows:
• RM3.0b 7-year Re-opening of the MGS 7/24 which garnered BTC ratio of 1.60
times at average yield of 3.879%.
• RM1.5b 20-year Re-opening of the GII 8/37 which garnered a BTC ratio of
2.15 times at average yield of 4.785%
• RM4.0b 30-year Re-opening of the MGS 3/46 which drew a BTC ratio of 1.60
times at average yield of 4.957%.
Malaysia’s forex reserves rose by USD0.3b to USD101.5b as at 31 October, from
USD101.2b at end-September. They are sufficient to finance 7.6 months of retained
imports and cover 1.1x the short-term external debt. Malaysia’s real GDP grew by a
20
stronger 6.2% YoY in 3Q17, vs 5.8% in 2Q17, on the back of stronger export growth
and overall domestic demand/private investment. This is the key driver for the
strengthening of MYR as it reinforced rate hike expectations. Similarly, the current
account surplus increased to MYR12.5b in 3Q17, mainly due to a larger surplus in the
merchandise trade balance. The external outlook continues to be supported by
improving global growth prospects, strong and stable global demand for E&E and
commodity products. On the other hand, headline inflation eased to 3.7% YoY in
October, from 4.3% in September. This was mainly due to a slower increase in
transportation costs amid lower fuel prices, while prices of F&B also eased. The easing
of headline inflation has limited impact on the market. The month started with selling
pressure in the bond market due to the hawkish shift in the November MPC statement.
The central bank hinted that it may consider reviewing the current degree of monetary
accommodation given the strength of global and domestic macroeconomic conditions.
The above came as a surprise to the market. As a result, the MGS/IRS curve steepened
across all tenors particularly on the long-end. However, the sell-off was immediately
countered by the local traders/investors who bought them in the dip. This implies ample
market liquidity among the local market players who are willing to extend their
portfolio duration amid the sell-off. Overall, the MGS market was supported somewhat.
Market has been taking cues from the MPC statement that rate hike is around the
corner. This results in rapid strengthening of MYR throughout the month. MYR
strengthened from around 4.20 level to 4.09 against USD during the month, i.e. an
appreciation of 2.6%. The stronger than expected Q3 GDP growth numbers reinforced
rate hike prospects. Meanwhile, foreigners have been buying the short-end MGS/GII
for MYR play, as well as the selective benchmark MGS, especially the 7y and the 10y.
The 7y and 10y curve is now inverted, signaling more demand by the foreigners on the
10y. As at end Nov, 3-year, 5-year, 7-year, 10-year, 15-year, 20-year and 30-year close
at 3.41%, 3.63%, 3.93%, 3.88%, 4.44%, 4.61% and 4.90% respectively.In the primary
market, there were three government bond auctions as follows:
• RM3.0b 10-year Re-opening of the GII 7/27 which garnered BTC ratio of 1.83
times at average yield of 4.347%.
• RM2b 15-year Re-opening of the MGS 4/33 which garnered a BTC ratio of
3.81 times at average yield of 4.55%
• RM3.0b 5-year Re-opening of the GII 4/22 which drew a BTC ratio of 1.72
times at average yield of 3.872%.
Malaysia’s CPI” for November 2017 came in at 3.4%, a slight drop from the 3.7%
increase in the previous month. Year-to-date, average inflation rate for 2017 stands at
3.9% YoY which is well within market expectations. The slight slowdown in inflation
mirrors the transport inflation trend which has enjoyed stable crude oil prices in recent
months. Meanwhile, core inflation remains low at 2.2% YoY in November. On the
trade front, Malaysia's export growth in October remains strong, rising 18.9% from a
year earlier. This is the eleventh consecutive months of double-digit expansion in
exports since December 2016, a feat that is likely not going to be repeated in 2018. In
line with exports, imports growth also surged 20.9% YoY during the same month.
Consequently, trade surplus reached a 19-month high of RM10.6b. Strong demands
from developed markets and rising global commodity prices continue to underpin
Malaysia’s robust trade performance. On the employment front, Malaysia’s labour
force grew by 2.2% YoY to 15.1m in October while unemployment rate remains at a
healthy level 3.4%. Due to the strong economic performance in the past year, jobs
creation has been steadily gaining momentum and thus outpacing unemployment
growth since March 2017. Finally, the Government announced that it has agreed to
provide RM929.4m for the subsidy and rebate of 1.80sen/kWh for the period of Jan 1
21
to June 30, 2018, hence sparing consumers the potential of an electricity rate hike for
the next six months. As the year 2017 comes to a close, trading volume in the MGS
market dwindled to RM27.6b from RM58.5b in the previous month. There was a slight
flattening on the MGS yield curve but the market was generally directionless and
liquidity was thin. There were no surprises whether it be domestic or external and the
only major event is that of the third FOMC rate hike which has been well
communicated in advance. As at end December, 3-year, 5-year, 7-year, 10-year, 15-
year, 20-year and 30-year close at 3.31%, 3.64%, 3.90%, 3.91%, 4.37%, 4.61% and
4.90% respectively. In the primary market, there were two government bond auctions
as follows:
• RM2.5b 10-year Re-opening of the MGS 11/27 which garnered BTC ratio of
1.53 times at average yield of 3.946%.
• RM2.5b 15-year Re-opening of the GII 6/33 which drew a BTC ratio of 1.775
times at average yield of 4.724%.
BNM also announced the 2017 government bonds auction calendar which consist of a
total of 33 offerings (2017: 32) made up of 15 MGS (2017: 16) and 18 GII (2017: 16)
auctions.
Market
Outlook
Just like the year before, post the US Federal Open Market Committee (“FOMC” or
“Fed”) December rate hike, investors are still digesting the evolution of US monetary
policy. Unlike last year however, there is greater clarity on the impact of President
Trump’s policies and in particular his success in pushing through the tax reforms. The
USD1.5 trillion tax bill, which includes permanent tax breaks for corporations (tax cut
from 35% to 21%) and temporary tax cuts for individual (a cut in top individual tax
rate from 39.6% to 37%) has been signed into law by the President and is projected to
provide a boost to US GDP of up to 1.7% over the long run.
With the fiscal stimulus expected to work its way into the economy in the next year or
two, the Fed’s long term 2.0% inflation target remains on track and hence also the
Fed’s guidance of three rate hikes in 2018.
The continuation of this rising interest rate trajectory is expected to prod similar
action(s) from other central banks globally and in particular the emerging markets.
South Korea was the first country in Asia to move and Malaysia looks likely to follow
suit. Nevertheless, in Malaysia’s case, the BNM Governor has clarified that any hike in
the OPR is a step towards normalization and not tightening and that the country’s
economic growth remains healthy with inflation under control.
As such, investors will likely continue to be guided by external economic
developments in the medium term whilst the perceived undervalued nature of the
Ringgit will likely continue to attract fund flows in the near future.
Since the MPC meeting on 9 November, the MGS curve which has initially bear
steepened has regain some grounds as foreign fund bet on further appreciation of the
Ringgit. This is most apparent in the MGS 1y5y spread which widened from 65bps to
close to 100bps while trade volumes on the front-end of the curve has surged and
yields for MGS 2018s has dropped by around 50 - 60bps, way below OPR.
The six months record outflow of close to RM60b from August 2016 – February 2017
is now a distant memory. While only half of the outflows has returned onshore, BNM
takes comfort that confidence in our bond market and the Ringgit has been restored.
22
The Ringgit ended 2017 at 4.05 to the USD, an appreciation of around 10% YoY. The
momentum moving forward however remains positive and this is reflected in the latest
data from BNM which showed that foreign holdings in MGS has risen to RM160.3b or
44.4% out of outstanding, which is a huge recovery from the low of 38.5% in March
2017.
Finally, from the recently released 2018 government bond auction calendar, we
surmised the following:
• The 33 offerings for 2018 (one more than 2017) is now evenly more distributed
across the tenors, which should alleviate some pressure at the longer end of the
curve which was well supplied in 2017.
• Similar to 2017, there will be heavy maturities in the month of February and
March in the 1H2018 (RM16.5b) and another RM32.9b maturing in August-
November 2018. These are the months where there will likely be more
opportunities to trade.
• Except for the current 15Y, 20Y and 30Y GII, all the existing Benchmark for
MGS and GII will be replace with new Benchmarks either through new
issuances or re-openings from existing off-the-runs.
Finally, gross supply for 2018 is expected to be around RM103b (2017: RM107.5b).
Kuala Lumpur, Malaysia
AmFunds Management Berhad
7 February 2018
23
ADDITIONAL INFORMATION
Board of Directors of the Manager
The Board of Directors, of which more than one-third are independent members,
exercise ultimate control over the operations of the Manager. For the financial year ended
31 December 2017 (1 January 2017 to 31 December 2017), there was one (1) Board of Directors’
meeting held by the Manager.
Details of the Directors of the Manager are set out as below:
Name : Raja Maimunah binti Raja Abdul Aziz
Age : 49 years old
Nationality : Malaysian
Qualification : i) Bachelor of Laws, the University of East London
ii) Honorary Doctorate of Law, The University of East
London
Executive/Non-Executive
Director
: Non-Executive Director
Independent/Non-Independent
Director
: Non-Independent Director
Working Experience : i) (Jan 1992 – May 1993)
KPMG Peat Marwick Consultants
[Junior Consultant, Recovery & Corporate Finance]
ii) (June 1993 – Jul 1998)
CIMB Investment Bank Berhad
[Senior Manager, Corporate Finance/ DCM]
iii) (Aug 1998 – Aug 1999)
Pengurusan Danaharta Nasional Berhad
[Manager, Corporate Finance]
iv) (Sep 1999 – Jun 2003)
CIMB Investment Bank Berhad
[Associate Director, Investment Banking]
v) (Jan 2004 – Dec 2004)
RHB Investment Bank Berhad (formerly known as
RHB Sakura Merchant Bank Berhad)
[Senior Vice President & Head, Investment Banking
Group]
vi) (Jan 2005 – Dec 2006)
Bank Alkhair B.S.C (c)
(formerly known as Unicorn Investment Bank)
[Senior Director]
vii) (Jan 2007 – Dec 2008)
Kuwait Finance House (Malaysia) Berhad
[Chief Corporate Officer & Head of International Business
Corporate and Investment Banking]
24
viii) (June 2009 – June 2011)
Bursa Malaysia Berhad
[Global Head, Islamic Markets]
ix) (Oct 2011 – Feb 2017)
Hong Leong Islamic Bank Berhad
[Managing Director/ Chief Executive Officer]
x) (Feb 2017 – Present)
AmFunds Management Berhad
[Chief Executive Officer]
Occupation : Chief Executive Officer, AmInvestment Bank Berhad
Date of appointment : 7 March 2017
Directorship of other public
companies
: Not applicable
Number of Board meeting
attended for the financial year
ended 31 December 2017
: One (1) out of one (1) Board Meeting
Member of any other Board
Committee
: Not applicable
Date of appointment to the
Investment Committee
: Not applicable
Number of Investment
Committee meeting attended for
the financial year ended 31
December 2017
: Not applicable
Family relationship with any
director
: None
Conflict of interest with the
Fund
: None
List of convictions for offences
within the past 10 years (if any)
: None
Name : Dato’ Mustafa bin Mohd Nor
Age : 66 years old
Nationality : Malaysian
Qualification : i) Master of Arts (Economic Policy), Boston University,
USA
ii) Bachelor of Economics (Analytical), University of
Malaya, Malaysia
Executive/Non-Executive
Director
: Non-Executive Director
Independent/Non-Independent
Director
: Independent Director
Working Experience : i) (1975-1988)
Ministry of Finance
[Last position held – Head of Macroeconomic Section,
Economic and International Division]
ii) (1988-1990)
25
Development & Commercial Bank Berhad.
[Manager, Treasury Department]
iii) (March 1990-August 1992)
Arab-Malaysian Securities Sdn Bhd
[Chief Economist]
iv) (September 1992-December 2001)
AmSecurities Sdn Bhd
[Executive Director/Chief Economist]
v) (January 2002-December 2005)
AmSecurities Sdn Bhd
[Managing Director]
vi) (January 2006-May 2009) (Retirement)
AmInvestment Bank Berhad Group
[Economic Advisor]
vii) (September 2009-August 2012) (Contract)
Permodalan Nasional Berhad
[Senior Vice President/Head, Research Division]
Occupation : Director
Date of appointment : 3 March 2014
Directorship of other public
companies
: KUISAS Berhad
Number of Board meeting
attended for the financial year
ended 31 December 2017
: One (1) out of one (1) Board Meeting
Member of any other Board
Committee
: i) Audit Committee of Directors
ii) Investment Committee
Date of appointment to the
Investment Committee
: 3 March 2014
Number of Investment
Committee meeting attended for
the financial year ended 31
December 2017
: One (1) out of one (1) Investment Committee Meeting
Family relationship with any
director
: None
Conflict of interest with the
Fund
: None
List of convictions for offences
within the past 10 years (if any)
: None
Name : Tai Terk Lin
Age : 57 years old
Nationality : Malaysian
Qualification : i) Master of Business Administration (School of
Management), Cranfield Institute of Technology,
United Kingdom.
ii) Bachelor of Science with Education, Mathematics &
26
Physics, University of Malaya, Malaysia.
iii) Certified Financial Planner Board of Standard, Inc,
USA Certified Financial Planner
iv) Financial Industry Certified Professional, FICP,
Institute of Banking & Finance (IBF), Singapore
Executive/Non-Executive
Director
: Non-Executive Director
Independent/Non-Independent
Director
: Independent Director
Working Experience : 1. (October 2009 – September 2012)
(Oct 2012 with ICB Indonesia)
AG, ICB Banking Group
[Group Chief Executive Officer of ICB Financial
Group Holdings]
2. (January 2009 – August 2009)
Platinum Capital Management (Asia) Pte Ltd, Singapore
[Executive Director/Head of Business Development
Asia]
3. (January 2007 – November 2008)
DBS Bank, Singapore
[Senior Vice President/Head – Malaysia Coverage
Private Banking]
4. (March 2002 – December 2006)
AmInvestment Bank Berhad
[Director/Head, Private Banking]
5. (April 1995 – December 2001)
HLB Unit Trust Management Bhd
[Chief Executive Officer]
6. (April 1994 – March 1995)
Hong Leong Bank Berhad (Ex-Hong Leong Finance)
[Chief Project Manager/Credit Manager]
7. (January 1994 – April 1994)
United Merchant Finance Berhad
[Special Assistant to Executive Chairman]
8. (June 1992 – December 1993)
Hong Leong Management Company Sdn Bhd
[Senior Analyst (Executive Chairman’s Office)]
9. (January 1991 – June 1992)
Corporate Care Division, PricewaterhouseCoopers
[Consulting Manager]
Occupation : Director
Date of appointment : 15 December 2014
Directorship of other public
companies
: Nil
27
Number of Board meeting
attended for the financial year
ended 31 December 2017
: One (1) out of one (1) Board Meeting
Member of any other Board
Committee
: Investment Committee and Audit and Examination
Committee (f.k.a Audit Committee of Directors)
Date of appointment to the
Investment Committee
: 15 December 2014
Number of Investment
Committee meeting attended for
the financial year ended 31
December 2017
: One (1) out of one (1) Investment Committee Meeting
Family relationship with any
director
: None
Conflict of interest with the
Fund
: None
List of convictions for offences
within the past 10 years (if any)
: None
Name : Sum Leng Kuang
Age : 63 years old
Nationality : Malaysian
Qualification : i) Bachelor of Commerce (Finance), University of
Canterbury, New Zealand
ii) Certified Financial Planner, Financial Planning
Association of Malaysia
Executive/Non-Executive
Director
: Non-Executive Director
Independent/Non-Independent
Director
: Independent Director
Working Experience : i) (May 1982- September 2001)
Overseas Assurance (M) Berhad
[Deputy Head, Investment]
ii) (September 2001-December 2011)
Great Eastern Life Assurance (M) Berhad
[Senior Vice President & Head, Fixed
Income Investment]
iii) (January 2012-April 2013)
Great Eastern Life Assurance (M) Berhad
[Senior Vice President & Advisor, Fixed Income
Investment]
iv) (May 2013-July 2014)
Hong Leong Asset Management Berhad
[Chief Investment Officer, Fixed Income & Acting
Chief Executive Officer]
v) (May 2015-Present)
Credit Guarantee Corporation Malaysia Berhad
[Advisor, Investment (Contract)]
28
Occupation : i) Advisor, Investment of Credit Guarantee Corporation
Malaysia Berhad
Date of appointment : 18 January 2016
Directorship of other public
companies
: Pacific & Orient Insurance Co. Berhad
Number of Board meeting
attended for the financial year
ended 31 December 2017
: One (1) out of one (1) Board Meeting
Member of any other Board
Committee
: Investment Committee and Audit and Examination
Committee (f.k.a Audit Committee of Directors)
Date of appointment to the
Investment Committee
: 18 January 2016
Number of Investment
Committee meetings attended
for the financial year ended 31
December 2017
: One (1) out of one (1) Investment Committee Meeting
Family relationship with any
director
: None
Conflict of interest with the
Fund
: None
List of convictions for offences
within the past 10 years (if any)
: None
Name : Goh Wee Peng
Age : 43 years old
Nationality : Malaysian
Qualification : i) Bachelor of Business (Economics and Finance)
ii) Persatuan Forex License (Institute Bank-bank Malaysia)
iii) Dealer’s Representative License (issued by Securities
Commission)
iv) Capital Markets Services Representative License Holder
Executive/Non-Executive
Director
: Executive Director
Independent/Non-Independent
Director
: Non-Independent Director
Working Experience : i) (April 1997-July 1999)
Fulton Prebon (M) Sdn Bhd
[Money Market Broker]
ii) (August 1999-Jun2000)
HLG Securities Sdn Bhd
[Institutional Dealer]
iii) (July 2000-May 2001)
HLG Asset Management
[Research Executive]
iv) (May 2001-May 2002)
HLG Asset Management
[Investment Analyst]
v) (June 2002-August 2002)
29
Southern Bank Berhad
[Fixed Income Dealer]
vi) (September 2002-March 2004)
AmInvestment Management Sdn Bhd
[Credit Analyst]
vii) (April 2004-March 2005)
AmInvestment Management Sdn Bhd
[Assistant Fund Manager]
viii) (April 2005-March 2006)
AmInvestment Management Sdn Bhd
[Fund Manager]
ix) (April 2006-March 2009)
AmInvestment Management Sdn Bhd
[Head of Fixed Income]
x) (April 2009-March 2010)
AmInvestment Management Sdn Bhd
[Head of Fixed Income & Acting Chief Investment Officer
of Fixed Income]
xi) (April 2010-June 2016)
AmInvestment Management Sdn Bhd/ AmFunds
Management Berhad
[Chief Investment Officer of Fixed Income]
xii) (July 2016-May 2017)
AmFunds Management Berhad
[Deputy Chief Executive Officer]
xiii) (June 2017-Present)
AmFunds Management Berhad
[Acting Chief Executive Officer]
Occupation : Acting Chief Executive Officer
Date of appointment : 1 June 2017
Directorship of other public
companies
: Not Applicable
Number of Board meeting
attended for the financial year
ended 31 December 2017
: One (1) out of one (1) Board Meeting
Member of any other Board
Committee
: Not Applicable
Date of appointment to the
Investment Committee
: 31 October 2017
Number of Investment
Committee meeting attended for
the financial year ended 31
December 2017
: One (1) out of one (1) Investment Committee Meeting
Family relationship with any : None
30
director
Conflict of interest with the
Fund
: None
List of convictions for offences
within the past 10 years (if any)
: None
Investment Committee
The Investment Committee, of which more than one-third are independent members, exercise
ultimate select appropriate strategies and efficiently implemented to achieve the proper performance,
actively monitor, measure and evaluate the fund management performance of the Manager. For the
financial year end 31 December 2017 (1 January 2017 to 31 December 2017), there was one (1)
Investment Committee meeting held by the Manager.
Madam Sum Leng Kuang (profile as mentioned above)
Y. Bhg. Dato’ Mustafa bin Mohd Nor (profile as mentioned above)
Mr Tai Terk Lin (profile as mentioned above)
Zainal Abidin Bin Mohd Kassim (profile as mentioned below)
Goh Wee Peng (profile as mentioned above)
Name : Zainal Abidin Bin Mohd Kassim
Age : 61 years old
Nationality : Malaysian
Qualification : i) Bachelor of Science, (First Class Honours), in Actuarial
Science (1978), City University London.
ii) Fellow of the Actuarial Society of Malaysia.
iii) Fellow of the Society of Actuaries of Singapore.
Associate of the Society of Actuaries, USA.
Executive/Non-Executive
Director
: Non-Executive Director
Independent/Non-Independent
Director
: Independent Director
Working Experience : i) (1978 -1982)
Prudential Assurance Plc, London
[Actuarial Assistant]
ii) (1982 – Present)
Actuarial Partners Consulting, Malaysia
[Consulting Actuary and Senior Partner]
Occupation : Consulting Actuary, Actuarial Partners Consulting Sdn Bhd
Directorship of other public
companies
: None
Member of any other Board
Committee
: None
Date of appointment to the
Investment Committee
: 30 November 2016
Number of Investment
Committee meeting attended for
the financial year ended
31 December 2017
: One (1) out of one (1) Investment Committee Meeting
31
Family relationship with any
director
: None
Conflict of interest with the
Fund
: None
List of convictions for offences
within the past 10 years (if any)
: None
Material Litigation
For the financial year under review, neither the Directors of the management company nor the
Manager of the Fund were engaged in any material litigation and arbitration, including those pending
or threatened, and any facts likely to give any proceedings, which might materially affect the
business/financial position of the Manager and of its delegates. The Fund has also not engaged in any
material litigation and arbitration, including those pending or threatened, and any facts likely to give
any proceedings, which might materially affect the Fund.
Manager
Previously, we have appointed AmInvestment Management Sdn Bhd (“AIM”) to implement the
Fund’s investment strategy on behalf of us to achieve the objectives of the Fund. However,
following the consolidation of business activities of AmFunds Management Berhad (formerly known
as AmInvestment Services Berhad) (“AFM”) and AIM on 1 December 2014, AFM has
acquired/assume the obligations, undertaking, commitments and contingencies of AIM. Effective 1
December 2014, AFM is a licensed fund manager approved by the Securities Commission Malaysia
and manages the Fund.
Investment Committee
The Investment Committee reviews the Fund’s investment objective and guidelines; and to ensure
that the Fund is invested appropriately. For the financial year ended 31 December 2017 (1 January
2017 to 31 December 2017), there was one (1) Investment Committee Meeting held by the Manager.
32
Unitholders
List of the unit holders having the largest number of units:
NAME
Number of
Unit Held
Unit Held
(%)
HSBC BANK MALAYSIA BERHAD 1,211,907,870 95.77106%
AMINVESTMENT BANK BERHAD 47,410,100 3.74658%
AMINVESTMENT BANK BERHAD 5,115,230 0.40423%
CITIBANK BERHAD 400,000 0.03161%
DEUTSCHE BANK (MALAYSIA) BERHAD 300,000 0.02371%
CITIBANK BERHAD 140,000 0.01106%
HSBC BANK MALAYSIA BERHAD 40,000 0.00316%
PUBLIC INVESTMENT BANK BERHAD 15,000 0.00119%
AMINVESTMENT BANK BERHAD 14,000 0.00111%
HONG LEONG INVESTMENT BANK BERHAD 12,000 0.00095%
MAYBANK INVESTMENT BANK BERHAD 10,000 0.00079%
MAYBANK INVESTMENT BANK BERHAD 9,000 0.00071%
CIMB INVESTMENT BANK BERHAD 5,000 0.00040%
MAYBANK INVESTMENT BANK BERHAD 5,000 0.00040%
HONG LEONG INVESTMENT BANK BERHAD 5,000 0.00040%
HONG LEONG INVESTMENT BANK BERHAD 3,500 0.00028%
CIMB INVESTMENT BANK BERHAD 3,000 0.00024%
INTER-PACIFIC SECURITIES SDN BHD 3,000 0.00024%
MAYBANK INVESTMENT BANK BERHAD 3,000 0.00024%
MAYBANK INVESTMENT BANK BERHAD 2,800 0.00022%
ALLIANCE INVESTMENT BANK BERHAD 2,200 0.00017%
ALLIANCE INVESTMENT BANK BERHAD 2,000 0.00016%
RHB INVESTMENT BANK BERHAD 1,000 0.00008%
INTER-PACIFIC SECURITIES SDN BHD 1,000 0.00008%
CIMB INVESTMENT BANK BERHAD 1,000 0.00008%
RHB INVESTMENT BANK BERHAD 1,000 0.00008%
CIMB INVESTMENT BANK BERHAD 1,000 0.00008%
KENANGA INVESTMENT BANK BERHAD 1,000 0.00008%
MAYBANK INVESTMENT BANK BERHAD 1,000 0.00008%
MAYBANK INVESTMENT BANK BERHAD 1,000 0.00008%
Independent auditors’ report to the unitholders of
ABF Malaysia Bond Index Fund
Report on the audit of the financial statements
Opinion
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial statements of the Fund for the current year. These matters were addressed
in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. For the matter below, our description of
how our audit addressed the matter is provided in that context.
We have audited the financial statements of ABF Malaysia Bond Index Fund (“the Fund”), which
comprise the statement of financial position as at 31 December 2017, the statement of
comprehensive income, statement of changes in equity and statement of cash flows for the year then
ended, and notes to the financial statements, including a summary of significant accounting policies,
as set out on pages 37 to 60.
In our opinion, the accompanying financial statements give a true and fair view of the financial
position of the Fund as at 31 December 2017, and of its financial performance and cash flows for the
year then ended in accordance with Malaysian Financial Reporting Standards and International
Financial Reporting Standards.
Basis for opinion
We conducted our audit in accordance with approved standards on auditing in Malaysia and
International Standards on Auditing. Our responsibilities under those standards are further described
in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence and other ethical responsibilities
We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct
and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics
Standards Board for Accountants‟ Code of Ethics for Professional Accountants (“IESBA Code”),
and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the
IESBA Code.
33
Valuation and existence of investments
The Manager is responsible for the other information. The other information comprises information
in the Annual Report, but does not include the financial statements of the Fund and our auditors‟
report thereon. The annual report is expected to be made available to us after the date of this
auditors‟ report.
In connection with our audit of the financial statements of the Fund, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements of the Fund or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
If based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Information other than the financial statements and auditors’ report thereon
Our opinion on the financial statements of the Fund does not cover the other information and we do
not express any form of assurance conclusion thereon.
The risk: The Fund‟s business is investing in a portfolio consisting of mainly Ringgit Malaysia
denominated Government and quasi-Government debt securities for investors who seek an „index-
based approach to investing. Accordingly, the investment portfolio of mainly Government debt
securities is a significant material item in the financial statements. The valuation of the assets held in
the investment portfolio is the key driver of the Fund‟s net asset value and investment return.
Incorrect asset pricing or a failure to maintain proper legal title of assets by the Fund could have a
significant impact on portfolio valuation and, therefore, the return generated for shareholders. We
therefore identified the valuation and existence of the investment portfolio as risks that require
particular audit attention.
Independent auditors’ report to the unitholders of
ABF Malaysia Bond Index Fund (cont’d.)
Our response: Our audit work included, but was not restricted to, understanding the Manager‟s
process and controls for the valuation of investments in order to assess compliance with relevant
accounting standards, performing walkthrough procedures and testing the operating effectiveness of
relevant controls on a sample basis. We agreed the valuation of all investments as at the year end to
an independent source of market prices. We obtained confirmation of the existence and ownership of
the investments as at the year- end directly from the Fund‟s independent Trustee. The Fund‟s
accounting policy on the valuation of investments is included in Note 3, and its disclosures about
investments held at the year-end are included in Note 4.
When we read the annual report, if we conclude that there is a material misstatement therein, we are
required to communicate the matter to the Manager and take appropriate action.
34
Responsibilities of the Manager and the Trustees for the financial statements
The Manager is responsible for the preparation of the financial statements of the Fund that give a
true and fair view in accordance with Malaysian Financial Reporting Standards and International
Financial Reporting Standards. The Manager is also responsible for such internal control as the
Manager determines is necessary to enable the preparation of financial statements of the Fund that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund‟s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the Manager either intends to liquidate the Fund
or to cease operations, or has no realistic alternative to do so.
Identify and assess the risks of material misstatement of the financial statements of the Fund,
whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund‟s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Manager.
Independent auditors’ report to the unitholders of
Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund,
as a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditors‟ report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance approved standards on auditing in Malaysia
and International Standards on Auditing will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
As part of an audit in accordance with the approved standards on auditing in Malaysia and
International Standards on Auditing, we exercise professional judgment and maintain professional
skepticism throughout the planning and performance of the audit. We also:
ABF Malaysia Bond Index Fund (cont’d.)
The Trustee is responsible for ensuring that the Manager maintains proper accounting and other
records as are necessary to enable true and fair presentation of these financial statements.
Auditor’s responsibilities for the audit of the financial statements
35
Wan Daneena Liza Bt Wan Abdul Rahman
No. 2978/03/18(J)
Chartered Accountants Chartered Accountant
Kuala Lumpur, Malaysia
7 February 2018
Conclude on the appropriateness of the Manager‟s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Fund‟s ability to continue
as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditors‟ report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditors‟ report. However, future events or conditions
may cause the Fund to cease to continue as a going concern.
Ernst & Young
This report is made solely to the unitholders of the Fund, as a body, and for no other purpose. We do
not assume responsibility to any other person for the content of this report.
Evaluate the overall presentation, structure and content of the financial statements of the
Fund, including the disclosures, and whether the financial statements of the Fund represent the
underlying transactions and events in a manner that achieves fair presentation.
ABF Malaysia Bond Index Fund (cont’d.)Independent auditors’ report to the unitholders of
AF: 0039
Other matters
We also provide the Manager with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
We communicate with the Manager regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
From the matters communicated with the Manager, we determine those matters that were of most
sigificance in the audit of the financial statements of the Fund for the current year and are therefore
the key audit matters. We describe these matters in our auditors‟ report unless law and regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that matter should not be communicated in our report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such communication.
36
ABF Malaysia Bond Index Fund
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2017
2017 2016
Note RM RM
ASSETS
Investments 4 1,446,080,288 1,436,208,939
Deposits with financial institutions 5 4,871,480 6,402,202
Cash at banks 1,437 1,427
TOTAL ASSETS 1,450,953,205 1,442,612,568
LIABILITIES
Amount due to Manager 6 122,994 115,557
Amount due to Trustee 7 57,458 57,779
Amount due to index provider 8 72,679 10,328
Sundry payables and accrued expenses 108,990 103,992
TOTAL LIABILITIES 362,121 287,656
EQUITY
Unitholders‟ capital 11(a) 1,334,273,353 1,396,802,853
Retained earnings 11(b)(c) 116,317,731 45,522,059
TOTAL EQUITY 11 1,450,591,084 1,442,324,912
TOTAL EQUITY AND LIABILITIES 1,450,953,205 1,442,612,568
UNITS IN CIRCULATION 11(a) 1,265,421,800 1,320,421,800
NET ASSET VALUE PER UNIT
− EX DISTRIBUTION 114.63 sen 109.23 sen
The accompanying notes form an integral part of the financial statements.
37
ABF Malaysia Bond Index Fund
STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
2017 2016
Note RM RM
Interest income 57,286,946 62,367,686
Net gain/(loss) from investments:
− Financial assets at fair value through profit or
loss (“FVTPL”) 9 16,086,106 (29,749,728)
Gross Income 73,373,052 32,617,958
EXPENDITURE
Manager‟s fee 6 (1,473,106) (1,652,424)
Trustee‟s fee 7 (736,553) (826,212)
Licence fee (198,857) (116,625)
Auditors‟ remuneration (10,700) (10,700)
Tax agent‟s fee (4,100) (5,000)
Other expenses 10 (154,064) (436,778)
Total Expenditure (2,577,380) (3,047,739)
NET INCOME BEFORE TAX 70,795,672 29,570,219
LESS: INCOME TAX 13 - -
NET INCOME AFTER TAX 70,795,672 29,570,219
OTHER COMPREHENSIVE INCOME - -
TOTAL COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR 70,795,672 29,570,219
Total comprehensive income comprises the following:
Realised income 53,455,825 43,401,051
Unrealised gain/(loss) 17,339,847 (13,830,832)
70,795,672 29,570,219
The accompanying notes form an integral part of the financial statements.
INVESTMENT INCOME/(LOSS)
38
ABF Malaysia Bond Index Fund
STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
Unitholders’ Retained Total
capital earnings equityNote RM RM RM
At 1 January 2016 1,325,924,353 15,951,840 1,341,876,193
Total comprehensive income
for the financial year - 29,570,219 29,570,219
Creation of units 11(a) 662,590,500 - 662,590,500
Cancellation of units 11(a) (591,712,000) - (591,712,000)
Balance at 31 December 2016 1,396,802,853 45,522,059 1,442,324,912
At 1 January 2017 1,396,802,853 45,522,059 1,442,324,912
Total comprehensive income
for the financial year - 70,795,672 70,795,672
Cancellation of units 11(a) (62,529,500) - (62,529,500)
Balance at 31 December 2017 1,334,273,353 116,317,731 1,450,591,084
The accompanying notes form an integral part of the financial statements.
39
ABF Malaysia Bond Index Fund
STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
2017 2016
Note RM RM
CASH FLOWS FROM OPERATING AND
INVESTING ACTIVITIES
Proceeds from sale of investments 342,836,725 962,746,905
Interest received 57,736,178 62,087,298
Manager‟s fee paid (1,465,669) (1,629,645)
Trustee‟s fee paid (736,874) (814,822)
Licence fee paid (136,506) (197,878)
Tax agent‟s fee paid (4,000) (4,000)
Payments for other expenses (159,866) (441,000)
Purchase of investments (337,071,200) (1,116,201,900)
Net cash generated from/(used in) operating and
investing activities 60,998,788 (94,455,042)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from creation - 663,041,610
Payments for cancellation of units (62,529,500) (591,712,000)
Net cash (used in)/generated from financing activities (62,529,500) 71,329,610
NET DECREASE IN CASH AND
CASH EQUIVALENTS (1,530,712) (23,125,432)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF FINANCIAL YEAR 6,403,629 29,529,061
CASH AND CASH EQUIVALENTS AT
END OF FINANCIAL YEAR 4,872,917 6,403,629
Cash and cash equivalents comprise:
Deposits with financial institutions 5 4,871,480 6,402,202
Cash at banks 1,437 1,427
4,872,917 6,403,629
The accompanying notes form an integral part of the financial statements.
40
ABF Malaysia Bond Index Fund
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
Standards effective during the financial year
Standards issued but not yet effective
Effective for
financial periods
beginning on or after
MFRS 9: Financial Instruments
MFRS 15: Revenue from contracts with Customers
ABF Malaysia Bond Index Fund (“the Fund”) was established pursuant to a Deed dated 12 July 2005 as
amended by Deeds Supplemental thereto (“the Deed”), between AmFunds Management Berhad as the
Manager, HSBC (Malaysia) Trustee Berhad as the Trustee and all unitholders.
The Fund plans to adopt the above pronouncements when they become effective in the respective
financial periods. These pronouncements are expected to have no significant impact to the financial
statements of the Fund upon their initial application except as described below:
The Fund was set up with the objective for investors who seek an “index-based” approach to investing in
a portfolio of Ringgit Malaysia denominated Government and quasi-Government debt securities. As
provided in the Deeds, the “accrual period” or financial year shall end on 31 December and the units in
the Fund were first offered for sale on 13 July 2005.
The financial statements of the Fund have been prepared under the historical cost convention, unless
otherwise stated in the accounting policies.
The adoption of MFRS which have been effective during the financial year did not have any material
financial impact to the financial statements.
As at the date of authorisation of these financial statements, the following Standards and Amendments
have been issued by MASB but are not yet effective and have not been adopted by the Fund.
The financial statements of the Fund have been prepared in accordance with Malaysian Financial
Reporting Standards (“MFRS”) as issued by the Malaysian Accounting Standards Board (“MASB”) and
are in compliance with International Financial Reporting Standards.
1 January 2018
1 January 2018
41
MFRS 9 Financial Instruments
3. SIGNIFICANT ACCOUNTING POLICIES
Income recognition
Income tax
Functional and presentation currency
Statement of cash flows
Interest income on fixed income securities and short-term deposits are recognised on an accrual basis
using the effective interest method, which includes the accretion of discounts and amortisation of
premiums.
MFRS 9 reflects International Accounting Standards Board‟s (“IASB”) work on the replacement of
MFRS 139 Financial Instruments: Recognition and Measurement (“MFRS 139”). MFRS 9 will be
effective for financial year beginning on or after 1 January 2018. Based on the Fund‟s preliminary
assessment, there is a minimal impact on the classification and measurement of the Fund‟s financial
asset and will continue to be measured at FVTPL. Further, there is no impact on the classification and
measurement of the Fund‟s financial liabilities.
The Fund adopts the direct method in the preparation of the statement of cash flows.
Cash equivalents are short-term, highly liquid investments that are readily convertible to cash with
insignificant risk of changes in value.
Income is recognised to the extent that it is probable that the economic benefits will flow to the Fund and
the income can be reliably measured. Income is measured at the fair value of consideration received or
receivable.
Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised
outside profit or loss, either in other comprehensive income or directly in equity.
Functional currency is the currency of the primary economic environment in which the Fund operates
that most faithfully represents the economic effects of the underlying transactions. The functional
currency of the Fund is Ringgit Malaysia which reflects the currency in which the Fund competes for
funds, issues and redeems units. The Fund has also adopted Ringgit Malaysia as its presentation
currency.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the
tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted at the reporting date.
42
Distribution
Unitholders’ capital
Financial assets
(i) Financial assets at FVTPL
Financial assets are classified as financial assets at FVTPL if they are held for trading or are
designated as such upon initial recognition. Financial assets held for trading by the Fund include
fixed income securities acquired principally for the purpose of selling in the near term.
The Fund determines the classification of its financial assets at initial recognition, and the categories
applicable to the Fund include financial assets at fair value through profit or loss (“FVTPL”) and loans
and receivables.
Investments are stated at fair value on a portfolio basis in accordance with the provisions of the
Deed, fair value is determined based on prices provided by the index provider, Markit Indices
Limited, plus accrued interest. Adjusted cost of investments relates to the purchase cost plus accrued
interest, adjusted for amortisation of premium and accretion of discount, if any, calculated over the
period from the date of acquisition to the date of maturity of the respective securities as approved by
the Manager and the Trustee. Unrealised gain or loss recognised in profit or loss is not distributable
in nature.
On disposal of investments, the net realised gain or loss on disposal is measured as the difference
between the net disposal proceeds and the carrying amount of the investments. The net realised gain
or loss is recognised in profit or loss.
Financial assets are recognised in the statement of financial position when, and only when, the Fund
becomes a party to the contractual provisions of the financial instrument.
Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Changes in
the fair value of those financial instruments are recorded in „Net gain or loss on financial assets at
fair value through profit or loss‟. Interest earned element of such instrument is recorded separately in
„Interest income‟.
Distributions are at the discretion of the Fund. A distribution to the Fund‟s unitholders is accounted for
as a deduction from realised reserves . A proposed distribution is recognised as a liability in the period in
which it is approved.
When financial assets are recognised initially, they are measured at fair value, plus, in the case of
financial assets not at fair value through profit or loss, directly attributable transaction costs.
The unitholders‟ capital of the Fund meets the definition of puttable instruments and is classified as
equity instruments under MFRS 132 Financial Instruments: Presentation (“MFRS 132”).
43
(ii) Loans and receivables
Impairment of financial assets
(i) Loans and receivables carried at amortised cost
Financial liabilities
The Fund‟s financial liabilities are recognised initially at fair value plus directly attributable transaction
costs and subsequently measured at amortised cost using the effective interest method.
If any such evidence exists, the amount of impairment loss is measured as the difference between the
asset‟s carrying amount and the present value of estimated future cash flows discounted at the
financial asset‟s original effective interest rate. The impairment loss is recognised in profit or loss.
The carrying amount of the financial asset is reduced through the use of an allowance account. When
loans and receivables become uncollectible, they are written off against the allowance account.
If in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised, the previously
recognised impairment loss is reversed to the extent that the carrying amount of the asset does not
exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss.
Financial assets with fixed or determinable payments that are not quoted in an active market are
classified as loans and receivables.
A financial liability is derecognised when the obligation under the liability is extinguished. Gains and
losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation
process.
Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position
when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument.
The Fund assesses at each reporting date whether there is any objective evidence that a financial asset is
impaired.
To determine whether there is objective evidence that an impairment loss on financial assets has
been incurred, the Fund considers factors such as the probability of insolvency or significant
financial difficulties of the debtor and default or significant delay in payments.
Financial liabilities are classified according to the substance of the contractual arrangements entered into
and the definitions of a financial liability.
Subsequent to initial recognition, loans and receivables are measured at amortised cost using the
effective interest method. Gains and losses are recognised in profit or loss when the loans and
receivables are derecognised or impaired, and through the amortisation process.
44
Classification of realised and unrealised gains and losses
Significant accounting estimates and judgments
4. INVESTMENTS
2017 2016
RM RM
Financial assets at FVTPL
At nominal value:
Quasi-Government Bonds 60,000,000 60,000,000
Malaysian Government Securities 822,500,000 794,500,000
Government Investment Issues 548,500,000 580,500,000
1,431,000,000 1,435,000,000
At fair value:
Quasi-Government Bonds 63,177,503 63,634,057
Malaysian Government Securities 830,254,369 792,009,698
Government Investment Issues 552,648,416 580,565,184
1,446,080,288 1,436,208,939
Unrealised gains and losses comprise changes in the fair value of financial instruments for the period and
from reversal of prior period‟s unrealised gains and losses for financial instruments which were realised
(i.e. sold, redeemed or matured) during the reporting period.
No major judgments have been made by the Manager in applying the Fund‟s accounting policies. There
are no key assumptions concerning the future and other key sources of estimation uncertainty at the
reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
Realised gains and losses on disposals of financial instruments classified at fair value through profit or
loss are calculated using the weighted average method. They represent the difference between an
instrument‟s initial carrying amount and disposal amount.
The preparation of the Fund‟s financial statements requires the Manager to make judgments, estimates
and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the
disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions
and estimates could result in outcomes that could require a material adjustment to the carrying amount of
the asset or liability in the future.
The Fund classifies its investments as financial assets at FVTPL as the Fund may sell its investments in
the short-term for profit-taking or to meet cancellation of units.
45
Details of investments as at 31 December 2017 are as follows:
Fair
value as a
percentage of
Maturity Credit Nominal Fair Adjusted net asset
date Issuer rating value value cost value
RM RM RM %
Quasi-Government Bonds
12.03.2019
Malaysia
Berhad NR 5,000,000 5,065,421 5,072,926 0.35
04.08.2026
Malaysia
Berhad NR 10,000,000 10,083,100 10,319,555 0.70
27.05.2039 1Malaysia
Development
Berhad NR 35,000,000 37,926,841 38,658,942 2.61
26.02.2041
Malaysia
Berhad NR 10,000,000 10,102,141 10,532,716 0.70
60,000,000 63,177,503 64,584,139 4.36
Malaysian Government Securities
15.03.2019 Government
of Malaysia NR 50,000,000 50,964,851 50,846,563 3.51
30.07.2019 Government
of Malaysia NR 10,000,000 10,649,597 10,545,108 0.73
31.10.2019 Government
of Malaysia NR 40,000,000 40,607,854 40,208,849 2.80
29.11.2019 Government
of Malaysia NR 30,000,000 30,778,773 30,747,863 2.12
31.03.2020 Government
of Malaysia NR 40,000,000 40,534,400 40,544,963 2.80
31.07.2020 Government
of Malaysia NR 10,000,000 10,298,933 10,244,087 0.71
15.10.2020 Government
of Malaysia NR 20,000,000 20,316,393 20,118,403 1.40
15.02.2021 Government
of Malaysia NR 20,000,000 20,310,005 20,308,008 1.40
30.09.2021 Government
of Malaysia NR 30,000,000 30,775,800 30,493,921 2.12
30.11.2021 Government
of Malaysia NR 45,000,000 45,308,858 45,791,521 3.12
10.03.2022 Government
of Malaysia NR 30,000,000 30,748,602 30,481,788 2.12
15.08.2022 Government
of Malaysia NR 20,000,000 20,016,492 19,945,707 1.38
30.09.2022 Government
of Malaysia NR 52,500,000 53,066,869 52,600,303 3.66
(Forward)
Prasarana
Prasarana
Prasarana
46
Fair
value as a
percentage of
Maturity Credit Nominal Fair Adjusted net asset
date Issuer rating value value cost value
RM RM RM %
Malaysian Government Securities
17.08.2023 Government
of Malaysia NR 40,000,000 40,473,609 40,142,032 2.79
15.07.2024 Government
of Malaysia NR 52,500,000 54,325,277 53,567,089 3.75
30.09.2024 Government
of Malaysia NR 30,000,000 30,602,025 30,644,428 2.11
15.09.2025 Government
of Malaysia NR 30,000,000 30,157,228 29,951,028 2.08
15.04.2026 Government
of Malaysia NR 25,000,000 25,721,753 26,172,658 1.77
30.11.2026 Government
of Malaysia NR 30,000,000 29,678,829 30,806,789 2.05
15.03.2027 Government
of Malaysia NR 10,000,000 9,887,765 10,240,071 0.68
16.11.2027 Government
of Malaysia NR 20,000,000 20,061,182 20,089,279 1.38
15.06.2028 Government
of Malaysia NR 35,000,000 33,282,841 33,135,274 2.30
15.04.2030 Government
of Malaysia NR 32,500,000 32,852,346 32,545,488 2.26
30.06.2031 Government
of Malaysia NR 30,000,000 30,197,250 30,352,749 2.08
15.04.2033 Government
of Malaysia NR 30,000,000 28,343,278 28,788,097 1.95
31.05.2035 Government
of Malaysia NR 10,000,000 9,619,360 9,588,207 0.66
07.04.2037 Government
of Malaysia NR 10,000,000 10,322,692 10,246,700 0.71
30.09.2043 Government
of Malaysia NR 20,000,000 20,452,950 20,719,873 1.41
15.03.2046 Government
of Malaysia NR 20,000,000 19,898,557 20,628,938 1.37
822,500,000 830,254,369 830,495,784 57.23
Government Investment Issues
30.04.2019 Government
of Malaysia NR 30,000,000 30,290,617 30,104,283 2.09
13.08.2019 Government
of Malaysia NR 10,000,000 10,242,388 10,208,722 0.71
15.04.2020 Government
of Malaysia NR 30,000,000 30,025,368 30,026,831 2.07
(Forward)
47
Fair
value as a
percentage of
Maturity Credit Nominal Fair Adjusted net asset
date Issuer rating value value cost value
RM RM RM %
Government Investment Issues
30.04.2020 Government
of Malaysia NR 10,000,000 10,288,278 10,339,583 0.71
15.05.2020 Government
of Malaysia NR 20,000,000 20,097,306 20,122,578 1.39
27.08.2020 Government
of Malaysia NR 35,000,000 35,637,847 35,323,976 2.46
23.03.2021 Government
of Malaysia NR 30,000,000 30,269,997 29,998,825 2.09
30.04.2021 Government
of Malaysia NR 10,000,000 10,189,916 10,260,406 0.70
26.08.2021 Government
of Malaysia NR 16,000,000 16,166,171 16,327,006 1.11
14.04.2022 Government
of Malaysia NR 30,000,000 30,431,446 30,539,135 2.10
15.07.2022 Government
of Malaysia NR 30,000,000 30,911,296 30,543,382 2.13
07.07.2023 Government
of Malaysia NR 20,000,000 20,759,113 20,734,031 1.43
31.10.2023 Government
of Malaysia NR 10,000,000 9,754,295 9,709,052 0.67
22.05.2024 Government
of Malaysia NR 20,000,000 20,449,899 20,348,589 1.41
15.08.2024 Government
of Malaysia NR 30,000,000 30,356,065 30,457,175 2.09
15.10.2025 Government
of Malaysia NR 52,500,000 52,136,215 51,777,215 3.59
30.09.2026 Government
of Malaysia NR 25,000,000 24,901,875 25,676,969 1.72
15.06.2027 Government
of Malaysia NR 20,000,000 19,378,735 20,231,701 1.34
26.07.2027 Government
of Malaysia NR 20,000,000 20,460,919 20,672,120 1.41
06.12.2028 Government
of Malaysia NR 10,000,000 10,496,891 10,320,489 0.72
30.09.2030 Government
of Malaysia NR 30,000,000 29,233,275 31,056,533 2.02
30.08.2033 Government
of Malaysia NR 30,000,000 29,858,018 30,338,923 2.06
31.10.2035 Government
of Malaysia NR 20,000,000 20,141,852 20,838,853 1.39
04.08.2037 Government
of Malaysia NR 10,000,000 10,170,634 10,174,558 0.70
548,500,000 552,648,416 556,130,935 38.10
(Forward)
48
Fair
value as a
percentage of
Maturity Credit Nominal Fair Adjusted net asset
date Issuer rating value value cost value
RM RM RM %
Total financial assets at FVTPL 1,431,000,000 1,446,080,288 1,451,210,858 99.69
Shortfall of fair value over cost (5,130,570)
2017 2016
% %
4.93 4.87
3.81 3.89
4.02 3.96
* As provided by Markit Indices Limited.
1 year to More than
5 years 5 years
RM RM
2017
At nominal value:
Quasi-Government Bonds 5,000,000 55,000,000
Malaysian Government Securities 397,500,000 425,000,000
Government Investment Issues 251,000,000 297,500,000
1 year to More than
5 years 5 years
RM RM
2016
At nominal value:
Quasi-Government Bonds 5,000,000 55,000,000
Malaysian Government Securities 415,000,000 379,500,000
Government Investment Issues 320,000,000 260,500,000
Government Investment Issues
Analyses of the remaining maturity of unquoted investments as at 31 December 2017 and 31 December
2016 are as follows:
The weighted average effective yield on unquoted investments are as follows:
Quasi-Government Bonds
Effective yield*
Malaysian Government Securities
49
5. DEPOSITS WITH FINANCIAL INSTITUTIONS
2017 2016
RM RM
At nominal value:
Short-term deposits with licensed banks 4,871,000 6,401,500
At carrying value:
Short-term deposits with licensed banks 4,871,480 6,402,202
Details of deposit with financial institution as at 31 December 2017 are as follows:
Carrying
value as a
percentage of
Maturity Nominal Carrying Purchase net asset
date Bank value value cost value
RM RM RM %
Short-term deposit with a licensed bank
Public Bank
Berhad 4,871,000 4,871,480 4,871,000 0.34
Weighted average effective Remaining
interest rate maturity2017 2016 2017 2016
% % Days Days
Short-term deposits with
licensed banks 3.60 4.00 2 3
6. AMOUNT DUE TO MANAGER
7. AMOUNT DUE TO TRUSTEE
02.01.2018
Manager‟s fee is charged at a rate of 0.10% (2016: 0.10%) per annum on the net asset value of the Fund,
calculated on a daily basis.
Trustee‟s fee is at a rate of 0.05% (2016: 0.05%) per annum on the net asset value of the Fund,
calculated on a daily basis.
The normal credit period in the previous and current financial years for Trustee‟s fee payable is one
month.
The weighted average effective interest rate and average remaining maturity of short-term deposits are as
follows:
The normal credit period in the previous and current financial years for Manager‟s fee payable is one
month.
50
8. AMOUNT DUE TO INDEX PROVIDER
Fund Size % p.a.
From 1 July 2008 onwards
For amount equal to or less than Initial Funding 0.0175
For amount above Initial Funding, but equal to or less than 275%
of Initial Funding 0.01
For amount above 275% of Initial Funding No charge
Subject to a minimum annual fee of USD21,234
* Initial Funding for the Fund was USD115,400,000.
9. NET GAIN/(LOSS) FROM INVESTMENTS
2017 2016
RM RM
Net gain/(loss) on financial assets at FVTPL comprised:
− Net realised loss on sale of investments (1,253,741) (15,918,896)
− Net unrealised gain/(loss) on changes in fair values of
investments 17,339,847 (13,830,832)
16,086,106 (29,749,728)
10. OTHER EXPENSES
11. TOTAL EQUITY
Total equity is represented by:
2017 2016Note RM RM
Unitholders‟ capital (a) 1,334,273,353 1,396,802,853
Retained earnings
− Realised income (b) 121,448,301 67,992,476
− Unrealised losses (c) (5,130,570) (22,470,417)
1,450,591,084 1,442,324,912
Licence fee is calculated on a daily basis at the following rate:
Amount due to index provider is the licence fee payable to Markit Indices Limited, the provider of the
benchmark index.
Included in other expenses is Goods and Services Tax incurred by the Fund during the financial year
amouting to RM144,723 (2016: RM152,040).
51
(a) UNITHOLDERS’ CAPITAL/UNITS IN CIRCULATION
2016
Number of Number of
units RM units RM
At beginning of the
financial year 1,320,421,800 1,396,802,853 1,265,421,800 1,325,924,353
Creation during
the financial year - - 605,000,000 662,590,500
Cancellation during the
financial year (55,000,000) (62,529,500) (550,000,000) (591,712,000)
At end of the financial year 1,265,421,800 1,334,273,353 1,320,421,800 1,396,802,853
(b) REALISED – DISTRIBUTABLE
2017 2016
RM RM
At beginning of the financial year 67,992,476 24,591,425
Total comprehensive income for the financial year 70,795,672 29,570,219
Net unrealised (gain)/loss attributable to investments
held transferred to unrealised reserve [Note 11(c)] (17,339,847) 13,830,832
Net increase in realised reserve for the financial year 53,455,825 43,401,051
At end of the financial year 121,448,301 67,992,476
(c) UNREALISED – NON-DISTRIBUTABLE
2017 2016
RM RM
At beginning of the financial year (22,470,417) (8,639,585)
Net unrealised gain/(loss) attributable to investments
held transferred from realised reserve [Note 11(b)] 17,339,847 (13,830,832)
At end of the financial year (5,130,570) (22,470,417)
12. UNITS HELD BY RELATED PARTIES
Number of Number of
units RM units RM
AmInvestment Bank Berhad* 52,539,430 59,894,950 52,212,530 57,955,908
*
2016
2017
2017
The parties related to the Manager are the legal and beneficial owners of the units. The Manager did
not hold any units in the Fund as at 31 December 2017 and 31 December 2016.
52
13. INCOME TAX
2017 2016
RM RM
Net income before tax 70,795,672 29,570,219
Taxation at Malaysian statutory rate of 24% 16,990,961 7,096,900
Tax effects of:
Income not subject to tax (17,910,430) (14,968,200)
Loss not deductible for tax purposes 300,898 7,139,900
Restriction on tax deductible expenses for exchange traded
funds 320,685 359,900
Non-permitted expenses for tax purposes 262,254 331,500
Permitted expenses not used and not available for future
35,632 40,000
Tax expense for the financial year - -
14. DISTRIBUTION
15. MANAGEMENT EXPENSE RATIO (“MER”)
2017 2016
% p.a. % p.a.
Manager‟s fee 0.10 0.10
Trustee‟s fee 0.05 0.05
Licence fee 0.01 0.01
Fund‟s other expenses 0.01 0.02
Total MER 0.17 0.18
financial years
Pursuant to Schedule 6 of the Income Tax Act, 1967, local interest income derived by the Fund is
exempted from tax.
A reconciliation of income tax expense applicable to net income before tax at the statutory income tax
rate to income tax expense at the effective income tax rate of the Fund is as follows:
Income tax payable is calculated on investment income less deduction for permitted expenses as
provided for under Section 63B of the Income Tax Act, 1967.
No distribution was declared by the Fund for the financial years ended 31 December 2017 and 31
December 2016.
The MER of the Fund is the ratio of the sum of annualised fees and expenses incurred by the Fund to the
average net asset value of the Fund calculated on a daily basis.
The Fund‟s MER is as follows:
53
16. PORTFOLIO TURNOVER RATIO (“PTR”)
17. SEGMENTAL REPORTING
18. TRANSACTIONS WITH FINANCIAL INSTITUTIONS
Financial institutions Transaction value
RM %
Malayan Banking Berhad 731,052,029 34.06
Public Bank Berhad 596,344,800 27.78
Citibank Berhad 290,057,282 13.51
AmBank (M) Berhad* 277,217,913 12.91
Standard Chartered Bank Malaysia Berhad 205,976,865 9.60
CIMB Bank Berhad 30,145,590 1.40
AmBank Islamic Berhad* 10,095,844 0.47
Hong Leong Bank Berhad 5,754,500 0.27
Total 2,146,644,823 100.00
19. FINANCIAL INSTRUMENTS
(a) Classification of financial instruments
In accordance with the objective of the Fund, substantially all of the Fund‟s investments are made in the
form of fixed income instruments in Malaysia. The Manager is of the opinion that the risk and rewards
from these investments are not individually or segmentally distinct and hence the Fund does not have a
separately identifiable business or geographical segments.
The PTR of the Fund, which is the ratio of average total acquisitions and disposals of investments to the
average net asset value of the Fund calculated on a daily basis, is 0.23 times (2016: 0.47 times).
The above transactions were in respect of fixed income instruments and money market deposits.
Transactions in these investments do not involve any commission or brokerage.
Details of transactions with financial institutions for the financial year ended 31 December 2017 are as
follows:
* A financial institution related to the Manager. The Manager and the Trustee are of the opinion that the
above transactions have been entered in the normal course of business and have been established under
terms that are no less favourable than those arranged with independent third parties
The significant accounting policies in Note 3 describe how the classes of financial instruments are
measured, and how income and expenses, including fair value gains and losses, are recognised. The
following table analyses the financial assets and liabilities of the Fund in the statement of financial
position by the class of financial instrument to which they are assigned, and therefore by the
measurement basis.
54
Loans and Financial
Financial receivables liabilities at
assets at amortised amortised
at FVTPL cost cost Total
RM RM RM RM
Assets
Investments 1,446,080,288 - - 1,446,080,288
Deposits with financial institutions - 4,871,480 - 4,871,480
Cash at banks - 1,437 - 1,437
Total financial assets 1,446,080,288 4,872,917 - 1,450,953,205
Liabilities
Amount due to Manager - - 122,994 122,994
Amount due to Trustee - - 57,458 57,458
Amount due to index provider - - 72,679 72,679
Sundry payables and
accrued expenses - - 108,990 108,990
Total financial liabilities - - 362,121 362,121
Assets
Investments 1,436,208,939 - - 1,436,208,939
Deposits with financial institutions - 6,402,202 - 6,402,202
Cash at banks - 1,427 - 1,427
Total financial assets 1,436,208,939 6,403,629 - 1,442,612,568
Liabilities
Amount due to Manager - - 115,557 115,557
Amount due to Trustee - - 57,779 57,779
Amount due to index provider - - 10,328 10,328
Sundry payables and accrued
expenses - - 103,992 103,992
Total financial liabilities - - 287,656 287,656
Income, expense, gains
and losses
2017 2016
RM RM
Net gain/(loss) from financial assets at FVTPL 16,086,106 (29,749,728)
Income, of which derived from:
– Interest income from financial assets at FVTPL 57,086,337 61,914,984
- Interest income from loans and receivables 200,609 452,702
2016
2017
55
(b) Financial instruments that are carried at fair value
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2:
Level 3:
Level 1 Level 2 Level 3 Total
RM RM RM RM
- 1,446,080,288 - 1,446,080,288
- 1,436,208,939 - 1,436,208,939
(c)
Deposits with financial institutions
Cash at banks
Amount due to Manager
Amount due to Trustee
Amount due to index provider
Sundry payables and accrued expenses
20. RISK MANAGEMENT POLICIES
The Fund is exposed to a variety of risks that include market risk, credit risk, liquidity risk, single issuer risk,
regulatory risk, management risk and non-compliance risk.
The Fund uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:
The Fund‟s financial assets and liabilities at FVTPL are carried at fair value.
techniques which use inputs which have a significant effect on the recorded fair value that are
not based on observable market data.
2017
The following table shows an analysis of financial instruments recorded at fair value by the level of the
fair value hierarchy:
Financial instruments that are not carried at fair value and whose carrying amounts are reasonable
approximation of fair value
Financial assets at FVTPL
2016
Financial assets at FVTPL
The following are classes of financial instruments that are not carried at fair value and whose carrying
amounts are reasonable approximation of fair value due to their short period to maturity or short credit
period:
There are no financial instruments which are not carried at fair values and whose carrying amounts are not
reasonable approximation of their respective fair values.
other techniques for which all inputs which have a significant effect on the recorded fair values
are observable; either directly or indirectly; or
56
Market risk
(i) Interest rate risk
Parallel shift in yield
curve by: 2017 2016
RM RM
+100 bps (79,781,107) (77,627,715)
-100 bps 88,316,557 85,643,095
Credit risk
(i) Credit quality of financial assets
As a % of As a % of
debt net asset
Credit rating RM securities value
2017
NR* 1,446,080,288 100.00 99.69
2016
NR* 1,436,208,939 100.00 99.58
* Non-rated
The result below summarised the interest rates sensitivity of the Fund‟s NAV, or theoretical value
(applicable to money market deposit) due to the parallel movement assumption of the yield curve by
+100bps and -100bps respectively:
The following table analyses the Fund‟s portfolio of debt securities by rating category as at 31 December
2017 and 31 December 2016:
Risk management is carried out by closely monitoring, measuring and mitigating the above said risks, careful
selection of investments coupled with stringent compliance to investment restrictions as stipulated by the
Capital Market and Services Act 2007, Securities Commission‟s Guidelines on Exchange Traded Funds and
the Deed as the backbone of risk management of the Fund.
Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss to the Fund by
failing to discharge an obligation. The Fund invests in fixed income instruments. As such the Fund would be
exposed to the risk of bond issuers and financial institutions defaulting on its repayment obligations which in
turn would affect the net asset value of the Fund.
Market risk is the risk that the value of a portfolio would decrease due to changes in market risk factors such
as equity prices, interest rates (yield curve), foreign exchange rates and commodity prices.
Interest rates risk will affect the value of the Fund‟s investments, given the interest rates movements,
which are influenced by regional and local economic developments as well as political developments.
Domestic interest rates on deposits and placements with licensed financial institutions are determined
based on prevailing market rates.
Sensitivity of the Fund’s NAV, or theoretical value
57
As a % of
As a % of net asset
Credit rating RM deposits value
2017
P1/MARC-1 4,871,480 100.00 0.34
2016
P1/MARC-1 6,402,202 100.00 0.44
(ii) Credit risk concentration
As a % of As a % of
debt net asset
Sector RM securities value
2017
Public Finance 1,420,829,625 98.25 97.94
Transportation 25,250,663 1.75 1.75
1,446,080,288 100.00 99.69
2016
Public Finance 1,410,866,033 98.24 97.82
Transportation 25,342,906 1.76 1.76
1,436,208,939 100.00 99.58
Liquidity risk
Objectives and assumptions
Concentration of risk is monitored and managed based on sectorial distribution. The table below analyses
the Fund‟s portfolio of debt securities by sectorial distribution as at 31 December 2017 and 31 December
2016:
There is no geographical risk as the Fund invests only in investments in Malaysia.
Cash at banks are held for liquidity purposes and are not exposed to significant credit risk.
For deposits with financial institutions, the Fund only makes placements with financial institutions with
sound rating. The following table presents the Fund‟s portfolio of deposits by rating category as at 31
December 2017 and 31 December 2016:
Liquidity risk is defined as the risk of being unable to raise funds or borrowing to meet payment obligations as
they fall due. The Fund maintains sufficient level of liquid assets, after consultation with the Trustee, to meet
anticipated payments and cancellations of units. Liquid assets comprise of deposits with licensed financial
institutions and other instruments, which are capable of being converted into cash within 5 to 7 days. The
Fund‟s policy is to always maintain a prudent level of liquid assets so as to reduce liquidity risk.
For each security in the Fund, the cash flows are projected according to its asset class. Each asset class, if
any, follows the calculation method as below:
58
(i) For bonds
(a)
(b) For coupon-bearing bonds, the coupons could be paid on annual, bi-annual or quarterly basis.
Cash received from bonds are calculated as follows:
$ = cash received
R = coupon rate p.a.
F = coupon frequency
For zero coupon bonds, F = 0
At maturity: $ = Nominal
For F > 0
Before maturity: coupon payment, $ = Nominal * (R/F)
At maturity: maturity payment, $ = Nominal + (Nominal * R/F)
(ii) For money market instruments and deposits
The nominal amount and interest will be paid at maturity date. Cash received are calculated as follows:
$ = cash received
R = interest/profit rate p.a.
F = time to maturity (days)
At maturity: $ = Nominal + (Nominal*R*d/365)
0 – 1 1 – 2 2 – 3 3 – 4 4 – 5 More than
year years years years years 5 years
2017
Investments 231,423,503 214,347,769 195,021,530 200,159,950 1,015,754,860
Deposits
with financial
institutions - - - - -
Cash at banks 1,437 - - - - -
Total assets 63,508,950 231,423,503 214,347,769 195,021,530 200,159,950 1,015,754,860
Financial liabilities
Other
liabilities 362,121 - - - - -
2016
Investments 160,041,800 256,885,240 318,734,090 190,746,740 911,154,325
(Forward)
Financial assets
The following table presents the undiscounted contractual cash flows from different asset and liability classes
in the Fund:
For zero-coupon bonds, the nominal amount will be returned at maturity date.
Contractual cash flows (undiscounted)
Financial assets
58,634,591
4,872,922
57,302,560
59
0 – 1 1 – 2 2 – 3 3 – 4 4 – 5 More than
year years years years years 5 years
2016
Deposits
with financial
institutions - - - - -
Cash at banks 1,427 - - - - -
Total assets 63,708,293 160,041,800 256,885,240 318,734,090 190,746,740 911,154,325
Financial liabilities
Other
liabilities 287,656 - - - - -
Single issuer risk
Regulatory risk
Management risk
Non-compliance risk
21 CAPITAL MANAGEMENT
6,404,306
No changes were made in the objective, policies or processes during the financial years ended 31 December
2017 and 31 December 2016.
Internal policy restricts the Fund from investing in securities issued by any issuer of not more than a certain
percentage of its net asset value. Under such restriction, the risk exposure to the securities of any single issuer
is diversified and managed based on internal/external ratings.
Any changes in national policies and regulations may have effects on the capital market and the net asset value
of the Fund.
Poor management of the Fund may cause considerable losses to the Fund that in turn may affect the net asset
value of the Fund.
This is the risk of the Manager, the Trustee or the Fund not complying with internal policies, the Deed of the
Fund, securities law or guidelines issued by the regulators. Non-compliance risk may adversely affect the
investments of the Fund when the Fund is forced to rectify the non-compliance.
The primary objective of the Fund‟s capital management is to ensure that it maximises unitholders‟ value by
expanding its fund size to benefit from economies of scale and achieving growth in net asset value from the
performance of its investments.
The Fund manages its capital structure and makes adjustments to it, in light of changes in economic
conditions. To maintain or adjust the capital structure, the Fund may issue new or bonus units, make
distribution payment, or return capital to unitholders by way of redemption of units.
Contractual cash flows (undiscounted)
60
ABF Malaysia Bond Index Fund
STATEMENT BY THE MANAGER
Kuala Lumpur, Malaysia
7 February 2018
I, GOH WEE PENG, for and on behalf of the Manager, AmFunds Management Berhad for ABF
Malaysia Bond Index Fund do hereby state that in the opinion of the Manager, the accompanying
statement of financial position, statement of comprehensive income, statement of changes in equity,
statement of cash flows and the accompanying notes are drawn up in accordance with Malaysian
Financial Reporting Standards and International Financial Reporting Standards so as to give a true
and fair view of the financial position of the Fund as at 31 December 2017 and the comprehensive
income, the changes in equity and cash flows of the Fund for the financial year then ended.
GOH WEE PENG
For and on behalf of the Manager
AmFunds Management Berhad
61
62
TRUSTEE’S REPORT
63
DIRECTORY
Head Office 9th Floor, Bangunan Ambank Group
55, Jalan Raja Chulan, 50200 Kuala Lumpur
Tel: (03) 2032 2888 Facsimile: (03) 2031 5210
Email: [email protected]
Postal Address AmFunds Management Berhad
P.O Box 13611, 50816 Kuala Lumpur
Related Institutional Unit Trust Agent
AmBank (M) Berhad Head Office
Company No. 8515-D 31st Floor, Menara AmBank
No. 8 Jalan Yap Kwan Seng, 50450 Kuala Lumpur
AmInvestment Bank Berhad Head Office
Company No. 23742-V 22nd
Floor, Bangunan AmBank Group
55 Jalan Raja Chulan, 50200 Kuala Lumpur
For more details on the list of IUTAs, please contact the Manager.
For enquiries about this or any of the other Funds offered by AmFunds Management Berhad
Please call 2032 2888 between 8.45 a.m. to 5.45 p.m. (Monday to Thursday),
Friday (8.45 a.m. to 5.00 p.m.)
Semi-Annual Report28 February 2015
03 2132 2888 | aminvest.com | [email protected]
AmFunds Management Berhad (155432-A)