KUALA LUMPUR, May 11 — Malaysia’s bond market is again bracing for the mayhem that swept the region in 2013 as an impending rate hike in the US is set to spur another exodus of investors from the country.

In a report by the Financial Times, economists said the US Federal Reserve’s anticipated interest rate hike — its first since the 2008 financial crisis — is set to trigger the same turbulence in the Asian bonds market as its stimulus cutback had caused two years ago.

Geoff Kendrick, a strategist at Morgan Stanley, expressed greatest concern over Malaysia and Indonesia, citing the high levels of foreign ownership — 45 per cent, in Malaysia’s case — as a particular risk.

“Asia’s [fixed income markets’] vulnerability to a renewed tantrum is as great as it was in 2013,” Michael Spencer, chief economist for Asia at Deutsche Bank, told the FT.

“This presents a key potential source of contagion from any turmoil in the US bond market to Asia,” he said, noting that the level of foreigners holding local currency bonds was too large and has remained so since 2013.

During the end of 2013 and the early part of 2014, billions of ringgit had exited the Malaysian bond market, spurred by brutal selling by investors anticipating the so-called “tapering” of stimulus by the US Federal Reserve then.

Malaysia is particularly affected by outflows of foreign funds due to the high ratio of ownership by outside investors, with around 44.9 per cent of government bonds worth approximately US$43 billion (RM142 billion) held externally, according to securities firm Credit-Suisse Malaysia.

The level of foreign ownership of Malaysian government securities has not declined since.

Schroders’s Rajeev De Mello agreed that investors were currently “nervous” over the expected change in US monetary policy, but said the problem was overblown.

De Mello, who handles approximately US$10 billion in Asian bonds, said the region was better prepared for turmoil caused by the Fed’s policy actions.

“Asian economies are also large consumers of imported oil so the fall in crude oil prices this year has reduced inflationary pressures and boosted growth prospects,” he added.

Malaysia’s woes are not just over the US interest rate hike, however, as ratings agency Fitch continues to warn of a possible downgrade that will prompt further selloffs by investors.

“The decline in foreign holders of ringgit debt since the peak in August 2014 is comparable to the global financial crisis when everyone was clearing the decks,” said Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, was quoted as saying in an AFP report.

Foreign debt has soared to about 70 per cent of Malaysia's gross domestic product from less than 50 per cent prior to 2008. That compares with about 38 per cent in Thailand, 33 per cent in Indonesia and 21 per cent in the Philippines.

Further eroding investor confidence is the ongoing controversy over state-owned investment firm 1 Malaysia Development Bhd (1MDB) and its reported RM42 billion in debt, a large portion of which is seen as backed by the Malaysian government.