Investors will be watching
KUALA LUMPUR: Malaysian Rating Corporation (MARC) expects geopolitical worries will impact foreign investors' demand for local bonds but net foreign outflows are expected to moderate in 2019.
The rating agency said on Tuesday, uncertainties surrounding US-China trade, prospects of the US dollar, Brexit and the US government political gridlock as well as Malaysia’s moderating growth performance “will likely affect foreign investors’ demand for local bonds.
“MARC expects the amount of net foreign outflows to moderate in 2019, capped by: (i) the gradually increasing clarity in the Malaysian government’s macro policies going forward; (ii) a slowdown in the pace of interest rate hikes in the US; and (iii) the increased stability of the ringgit,” it said in its outlook for the bond market,” it said.
Net foreign outflows from the local bond market surged in January to November of 2018 to RM19.6bil compared with RM11.6bil in the previous corresponding period.
MARC said this brought down total foreign holdings to RM187.1bil (Jan-Nov 2017: RM204bil).
Overall, foreign ownership of local bonds fell to 13.3% of the total outstanding (Jan–Nov 2017: 15.9%).
“This was mostly attributed to the lower foreign holdings in Malaysian government bonds (MGS) which fell by RM12.7bil to RM147.6bil (Jan-Nov 2017: RM160.3bil) in the same period.
“By end-November, foreign ownership of MGS papers had declined to 38.8% (Jan–Nov 2017: 44.3%) of total MGS outstanding,” it said.
MARC pointed out foreign demand for local govvies or MGS fell significantly in 2018.
It noted the more hawkish stance of global banks and escalating global trade tensions did not help.
Foreign outflows from local govvies in the first 11 months of 2018 were also driven by: (i) slower Malaysian GDP growth in 2Q2018 and 3Q2018; (ii) rebound in US dollar; (iii) faltering crude oil prices; (iv) rising US Treasury yields; and (v) four FFR hikes that occurred in 2018.
Limited time offer:
Just RM5 per month.
