Foreign funds reduced MGS holdings by RM9.8b in April, MARC says

Investors will be watching

KUALA LUMPUR: Foreign investors reduced their holdings in Malaysian Government Securities (MGS) by RM9.8bil to RM180.1bil in April – the lowest level since March 2017, Malaysian Rating Corporation Bhd (MARC) said.

By end-April, foreign share of local bonds fell to 12.5% (March 2019: 13.1%) of total outstanding.

“MGS and GII contributed most of the outflows followed by corporate bonds and treasury bills. MGS and GII recorded net outflows of RM7.1bil (March 2019: +RM2.7bil) in April. YTD, the local bond market recorded total net outflow of RM4.7bil (January-April 2018: -RM1.3bil),” it said on Tuesday.

MARC said the knee-jerk reaction was because of news Malaysia might be dropped from the Norway’s US$1 trillion sovereign wealth fund (SWF) and the FTSE World Government Bond Index’s (WGBI) bond holdings. FTSE Russell had placed Malaysia on its watchlist to review Malaysian govvies participation in the WGBI.
 
Consequently, foreign investors’ interest in local bonds was diminished in April as they reduced their holdings by RM9.8 billion to RM180.1bil. It was the lowest level of foreign holdings in local bonds since March 2017. By end-April, foreign share of local bonds fell to 12.5% (March 2019: 13.1%) of total outstanding.

MARC said some of the losses in MGS were mitigated during the final week of the month. Bank Negara Malaysia and the Securities Commission pledged to deepen Malaysia’s onshore markets. 

The regulators also reassured and praised resiliency of local financial markets, putting a breather on MGS. 

MARC said in the same period, MGS also gained support from the weaker-than-expected rise in March CPI. By end-April, yields on MGS were lower by three bps to six bps with 10 year note settling at 3.79%.
 
“In the corporate bonds space, issuances have slowed down month-on-month in April to RM11.1bil (March 2019: RM11.3bil). 

“The decline was mainly contributed by the weaker volume from the unrated corporate which declined by RM1.6bil to RM1.1bil. 

“However, quasi government issuers recorded improved volume at RM7.1bil (March 2019: RM5.1 bil), led by large issuances from Danainfra Nasional Bhd (DanaInfra) and Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA),” MARC said.