KUALA LUMPUR: Malaysia recorded net foreign portfolio inflows at RM2.8bil in January, mainly into bonds, but this was slightly lower than the RM3bil last December, according to UOB Global Economics and Market Research.
“Overall net foreign inflows totalled RM2.8bil in Jan (Dec: +RM3bil) with bond inflows of RM3.7bil (Dec: +RM3.6bil) while equities saw a net outflow of RM800mil (Dec: -RM600mil), ” it said in a statement on Tuesday.
“This mirrored the trend of higher portfolio flows entering emerging market bonds, ” it said.
Key domestic events included the spike in Covid-19 infections that led to the reinstatement of Movement Control Order (MCO 2.0) since mid-January and declaration of state of emergency (until Aug 1).
Under MCO 2.0, containment measures including social and work mobility were tightened that included a ban on interstate and inter district travel. However key economic sectors and selected non-essential services are allowed to operate.
In January, foreigners bought Malaysian Government Securities (MGS) worth RM2.3bil (or about 61% of total RM3.7bil debt inflows) last month (Dec: +RM2.4bil).
This was followed by Government Investment Issues (GII, Jan: +RM900mil; Dec: +RM1.4bil), Malaysian Treasury Bills (Jan: +RM400mil; Dec: -RM100mil), and Private Debt Securities including private sukuk (Jan: +RM200mil; Dec: -RM60mil).
Foreign holdings of Malaysian government bonds (MGS & GII) remained at the highest level in more than four years, at RM205.3bil or 24.2% of total government bond outstanding as at Jan (Dec: RM202.1bil or 24.2%).
For MGS alone, foreign investors holdings were RM179.6bil or 40.5% of total MGS outstanding (Dec: RM177.3bil or 40.6%).
For GII, overseas investors owned RM25.7bil or 6.8% of total GII outstanding in Jan (Dec: RM24.8bil or 6.6%).
As for the stock market, foreigners remained net sellers as their ownership of Malaysian equities were at a record low of 20.7% of total market capitalisation in January (Dec 2020: 20.7%; Jan 2020: 22.4%).
Meanwhile, Bank Negara Malaysia’s foreign reserves edged up for the third straight month by US$1bil month-on-month to a 33-month high of US$108.6bil as at end-Jan (end-Dec: +RM2.3bil m/m to US$107.6bil).
UOB Global Economics and Market Research said the latest reserves position is sufficient to finance 8.6 months of retained imports and is 1.2 times total short-term external debt.
Foreign reserves were supported by portfolio flows into bonds as well as strong current account position thanks to healthy merchandise trade surplus.
“Despite domestic challenges, we think Malaysia’s government bonds remain attractive as capital flows into emerging markets remain strong given low global interest rates and high market liquidity that boosts positive carry-trades.
“We think the current global landscape (i.e. global reflation trade, prolonged low interest rates, and ongoing fiscal support) remains supportive of broad dollar weakness through the year.
“We expect improving recoveries across Asian countries particularly in China to further drive Asian currencies’ strength including the ringgit against the US$. We reiterate our US$/RM forecast of 4.00 by mid-2021 and 3.95 by year-end, ” it said.
Data to watch are the release of Malaysia’s 4Q and 2020 GDP on Thursday, Bank Negara’s monetary policy meeting (March 4), release of Bank Negara’s Annual Report 2020 (end-March), and FTSE Russell’s March WGBI review.
Malaysia will start the first phase of its vaccine program by end-Feb (for frontliners), second phase in April (for high-risk groups), and the third phase in May (for those aged 18 and above).