KUALA LUMPUR: Foreign appetite for Ringgit bonds remained lacklustre in May with RM4.2bil of outflows in May as the US-China trade tensions intensified, according to Maybank Investment Bank Research.
However, the pace of foreign selling slowed from RM9.8bil in April on the news that Malaysian bonds might lose its eligibility in the FTSE Russell WGBI, it said in a research note on Monday.
“The US-China rivalry probably had affected sentiment, as regional peer Indonesia equally saw weak foreign demand with US$700mil of outflows from Rupiah bonds in May (April: -US$500mil) despite the official results showed a win for President Jokowi,” it said.
Maybank IB Research said by instrument, MGS accounted for most of the outflows (-RM3.8bil) which was not surprisingly due to higher foreign positioning.
It also pointed out there was some foreign selling in GII but not significant at -RM500mil.
Foreign positioning in other debt instruments were still relatively low and did not see much changes in foreign holdings.
The foreign share of MGS and MGS+GII decreased to 35.8% (April: 37.1%) and 21.8% (April: 22.7%), the lowest since November 2011 and December 2010 respectively.
“After the outflow, the total amount of foreign holdings in Ringgit debts declined to RM175.9bil (April: RM180bil).
“Including the RM2bil outflows from domestic equities, overall portfolio flows totalled –RM6.2bil (-April: RM11.2bil). Meanwhile, ringgit was weaker against the US$ with the US$-Ringgit pair rising to 4.19 at end-May from 4.135 at end-April, or a 1.3% loss in value on-month,” it said.
Maybank IB Research said Malaysia’s external reserves declined by US$1.1bil on-month to US$102.3bil (April: US$103.4bil).
Bank Negara’s net short forward position, which is released with a one-month lag, improved slightly to US$14.1bil net short in April (March: US$14.2bil net short).
It also noted that if the forex forward book position remained unchanged in May, net official reserves would amount to about US$88.2bil (April: US$89.3bil).
Regional Foreign Flows (Local Currency Govt Bonds)
Total: Second consecutive month of foreign outflows for regional bonds, with –US$1bil for MGS+GII and –US$700mil for IndoGB, while pending the release of foreign holdings data for KTB and ThaiGB.
IndoGB: Foreigners sold US$700mil of Rupiah bonds in May (April: -US$500mil). Foreign share declined to 37.9% (April: 38.4%). On a year-to-date basis, Indonesian bonds still received net inflows but narrower at +US$4bil.
KTB: May’s data is pending. Foreign holdings increased by +US500mil in April (March: unchanged). Foreign share declined a tad to 14.6% (March: 14.7%). Year-to-date cumulative flows totalled –US$400mil at end-April.
MGS+GII: Outflows of –US$1bil in May (April: -USD1.7bil), the second month in a row. Foreign share of MGS+GII declined to 21.8% (April: 22.7%). YTD cumulative flows turned negative at –US$900mil.
ThaiGB: May’s data is pending. Foreign selling continued in April with a larger outflow of –US$600mil (March: -US$400mil). Foreign share fell to 17.4% (March: 18%). Year-to-date cumulative flows amounted to –US$1.2bil at end-April.