Malaysia bonds and equity markets gain from investor-interest in emerging markets

PETALING JAYA: For the last five weeks, the Malaysian capital markets have seen a net inflow of foreign funds. This has resulted in some stability in its equity market and buoyancy in its bond market.

According to analysts, the resurgence of investor-interest in emerging markets has benefited the Malaysian capital markets, as stagnant growth and negative interest rates in Western developed economies drive funds to seek better returns in this region.

“There is a lot of cheap money going around in this global environment of ultra-low to negative interest rates, and they are chasing for better returns. Emerging markets will naturally be the choice,” said Danny Wong, chief executive officer of local fund-management company Areca Capital Sdn Bhd.

“Malaysia will be one of the beneficiaries in this round of foreign capital inflows, as its equity market has yet to run up as much as its counterparts in this region, while its bond market continues to offer reasonably better yields,” he told StarBiz.

According to data published by Bank Negara’s website yesterday, foreign ownership of Malaysian government and corporate bonds in July 2016 had risen to a 22-month high of RM240.9bil. This represented an increase of 2.4% from RM235.2bil in the preceding month and about 5% from RM229.5bil in May.

Foreign interest in the debt market is mainly on government bonds. For instance, foreign ownership of Malaysian Government Securities (MGS) increased RM5.8bil in July to RM209.7bil. Foreigners now own almost 50% of the total MGS issued.

As for the equity market, the number of foreign funds that have come in between July 1 and Aug 9 – amounting to RM1.67bil – has mitigated the net outflows for the year. The year-to-date cumulative net foreign inflows into Malaysian equities stood at RM1.63bil as of yesterday.

Wong, however, remained cautious about the volatile nature of these foreign inflows, noting that these liquidity-driven money flows were unlikely here for the long-term.

Another fund manager concurred, noting the similarities between the current foreign capital inflows and previous experiences of foreign money flows into the country in recent years.

“We are probably looking at the same cycle of events... foreign capital comes to emerging markets in search of better returns, and then the withdrawal, with the timing of it depending on the policy stance or economic conditions in developed markets,” the fund manager with a local insurance company said.

Meanwhile, it had been reported that big institutional investors, such as BlackRock, which is the world’s largest fund manager with US$4.6 trillion (RM18.56 trillion) in assets under management, have turned positive on emerging markets.

BlackRock’s head of emerging market fixed-income portfolio management, Sergio Trigo Paz, was quoted as saying that there was now a mass movement of big institutional investors away from the stagnant growth and negative interest rates of the developed world to resurgent economies and enticing yields of emerging markets.

“This is not just the tactical guys. This is pension funds, sovereign wealth funds. The big, big guys are starting to move,” Paz told the Financial Times.

Meanwhile, Nomura Research said foreign inflows into Malaysian government bonds would likely continue and remain supportive of the ringgit.

“Our analysis reveals that real money investors are not overweight on Malaysian government bonds, and as such, bond inflows could continue, supporting ringgit outperformance,” the international brokerage said.

The ringgit gained 0.2% against the US dollar yesterday to close at 4.0275.

The FBM KLCI shed 2.99 points to close at 1,669.69, representing a year-to-date loss of 1.23%. The benchmark stock index would likely test 1,700 points in the near-term.

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Business , foreign inflows , MGS , bonds , stock market , KLCI


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