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Foreign flows into Malaysian bond market at 6-year high

Strong foreign purchases of Malaysian debt securities (2019: RM19.9bil; 2018: -RM21.9bil) was the sole contributor to overall foreign portfolio inflows last year.

Foreign portfolio flows returned to a six-year high inflow of RM8.8bil in 2019 which was in stark contrast with an outflow of RM33.6bil in 2018, according to UOB Global Economics & Markets Research.

It said yesterday strong foreign purchases of Malaysian debt securities (2019: +RM19.9bil; 2018: -RM21.9bil) was the sole contributor to overall foreign portfolio inflows last year.

The foreign purchases were more than enough to offset foreign outflows from the Malaysian equity market (2019: -RM11bil; 2018: -RM11.7bil).

“Foreign shareholdings of Malaysian government bonds rebounded close to the pre-general election high of 24.3% as at end-December 2019 (May 2018: 24.9%; end-2018: 22.7%). Conversely, foreign ownership of Malaysian equities slid to its lowest level in more than 2½ years (November 2019: 22.6%; end-2018: 23.4%), ” it said.

UOB Global Economics & Markets Research said that in December 2019, foreign investors continued to enter Malaysia’s bond markets with RM8.1bil (November: +RM8bil).

“Higher demand for Malaysia’s government bonds helped to offset foreign outflows from the equity market. The recovery was aided by looser global monetary policies and the US-China trade truce, ” it said.

However, foreign outflows from Malaysian equities persisted albeit net selling narrowing to RM1.1bil in December (November: -RM1.5bil).

The bulk of funds which entered government bonds were Malaysian Government Securities (MGS) and Government Investment Issues (GII).

There were some flows into private debt securities while Treasury bills recorded net outflows. MGS remained the biggest beneficiary in December, receiving RM5.5bil (November: +RM4.7bil). This was followed by GII with RM2.7bil (November: +RM3bil.

Private debt securities including private sukuk attracted RM600mil (November: +RM400mil), while Treasury bills recorded net selling of RM700mil (November: -RM90mil).

“Foreign holdings of Malaysian government bonds (MGS & GII) spiked up RM8.2bil to RM185bil in December (November: +RM7.7bil to RM176.8bil).

“This was equivalent to 24.3% of total government bond outstanding (November: 23.4%), the highest level since May 2018, ” it said.

UOB Global Economics & Markets Research said that for MGS alone, foreign holdings amounted to RM163.9bil (November: RM158.4bil) which was equivalent to 41.6% of total outstanding (November: 40.5%).

Foreign holdings of GII amounted to RM21.1bil as at end-December (November: RM18.4bil), which was the highest level since December 2016. It was equivalent to 6.2% of total GII outstanding (November: 5.4%).

“Reflecting the record foreign portfolio inflows, higher current account surplus and sustained net foreign direct investments, Bank Negara’s foreign reserves ended 2019 at a five-year high of US$103.6bil (end-2018: US$101.4bil).

“The latest reserves position is sufficient to finance 7½ months of retained imports and is 1.1 times short-term external debt.

“While Bank Negara has yet to release its December 2019 forex swaps number, the central bank’s short position in forex swaps narrowed by US$600mil to US$13.3bil as at end-November 2019 (end-October 2019: +US$200mil to US$13.8bil). November’s forex swap short position was equivalent to 12.9% of total foreign reserves, ” UOB Global Economics & Markets Research said.

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