KUALA LUMPUR: Overall foreign portfolio inflows almost doubled to RM4.6bil in the third quarter ended Sept 30 this year (3Q20) compared with RM2.4bil in 2Q20, says United Overseas Bank (Malaysia) Bhd global economics & markets research.
UOB Malaysia senior economist Julia Goh said this increase was despite moderating foreign flows into Malaysia’s bond market and net selling of equities in September.
She pointed out non-resident investors remained net buyers of Malaysian debt securities albeit at a slower pace for the fifth month. Bond flows rose RM500mil to RM209.5bil in September (August: +RM3bil to RM209bil).
However, Goh said foreigners remained net sellers of RM2bil worth of Malaysian equities in September (August: -RM1.5bil).
This saw overall foreign portfolio flows falling by RM1.4bil in September (August: +RM1.5bil).
As for bonds, she pointed out foreigners purchased mainly Malaysian Government Securities (MGS) totalling RM1.4bil (August: +RM3.2bil).
This was offset by net selling of Government Investment Issues (GII) of RM400mil (August: -RM200mil), Malaysian Treasury Bills RM400mil (Aug: -RM5mil), as well as private debt securities including private Sukuk of RM100mil (August: -RM80mil).
Foreign holdings of Malaysian government bonds (MGS & GII) rose by RM1.1bil to RM189.4bil (August: +RM3.1bil to RM188.3bil), equivalent to 23.1% of total outstanding (August: 23.3%).
For MGS alone, foreign holdings increased by RM1.4bil to RM169.2bil or 38.8% of total MGS outstanding (August: 39.2%), while GII fell further to RM20.2bil or 5.6% of total GII outstanding (August: 5.8%).
On a quarterly basis, overall foreign portfolio flows recorded a net inflow of RM4.6bil in 3Q20 as debt inflows (at +RM10.6bil) more than offset equity outflows (at -RM6bil).
This compares to overall net inflows of RM2.4bil in 2Q20 and net outflows of RM24.5bil in 1Q20.
“Despite the pick-up in foreign inflows between June-August, it was not sufficient to offset the larger declines particularly in February-March which leaves year-to-date foreign portfolio flows at –RM17.5bil in January-September (2019: +RM8.7bik).
Meanwhile, Bank Negara Malaysia’s foreign reserves increased by US$600mil month-on-month (or US$1.4bil year-to-date) to a 28-month high of US$105bil as at end-September (from US$104.4bil as at end-August).
Goh said this was mainly lifted by a continued debt inflows and foreign direct investment.
The latest foreign reserves position was sufficient to finance 8.4 months of retained imports and is 1.1 times short-term external debt.
She also said the divergence between debt and equity flows was expected to persist in the near term as uncertainties linger amid rising Covid-19 infections globally and in Malaysia.
“We expect a volatile period ahead of the US Presidential elections while US-China tensions remain elevated. However, expectations of broad dollar weakness alongside a robust economic recovery in China should lift Asia forex including ringgit over the next 6-12 months.
“We expect US$/ringgit to edge down to 4.05 by 1H21. Key to watch are the country’s fiscal stance, deficit and public debt projections for 2021 in its upcoming budget announcement on Nov 6, ” it said.
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