PETALING JAYA: Malaysia saw net foreign portfolio inflows at RM2.8bil in January, mainly into bonds, but this was slightly lower than the RM3bil recorded last December, according to UOB Global Economics and Markets Research.
The inflows were mainly led by net foreign buying of the country’s debt securities (January’s RM3.7bil versus December’s RM3.6bil), while foreigners remained net sellers of domestic equities (January’s -RM0.8bil versus December’s -RM0.6bil), according to UOB Global Economics and Markets Research.
Key domestic events include the spike in Covid-19 infections that led to the reinstatement of the movement control order (MCO 2.0) since mid-January and the declaration of the 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 were allowed to operate, the research noted.
Foreigners bought Malaysian Government Securities (MGS) worth RM2.3bil (or about 61% of the total RM3.7bil debt inflows) last month (December, RM2.4bil).
This was followed by Government Investment Issues or GII (January: RM0.9bil, December: RM1.4bil); Malaysian Treasury Bills (January: RM0.4bil, December: -RM0.1bil) and Private Debt Securities including private sukuk (January: RM0.2bil, December: -RM0.06bil).
UOB added that foreign holdings of Malaysian government bonds (MGS and GII) remained at the highest level in more than four years, at RM205.3bil or 24.2% of total government bonds outstanding as at January (December: RM202.1bil or 24.2%).
For MGS alone, foreign investors’ holdings were RM179.6bil, which is equivalent to 40.5% of the total MGS outstanding (December: RM177.3bil or 40.6%).
For GII, overseas investors owned RM25.7bil, which is equivalent to 6.8% of the total GII outstanding in January (December: RM24.8bil or 6.6%).
Foreigners, however, remained net sellers of Malaysian equities, leaving their ownership of Malaysian equities at a record low of 20.7% of total market capitalisation in January (December: 20.7%; January 2020: 22.4%).
“Despite domestic challenges, we think Malaysia’s government bonds remain attractive as capital flows into emerging markets remain strong, given the low global interest rates and high market liquidity that boosts positive carry-trades.
“To watch are the release of Malaysia’s fourth-quarter 2020 gross domestic product (GDP) results (Feb 11), Bank Negara’s monetary policy meeting (March 4), the release of the central bank’s annual report 2020 (end-March), and FTSE Russell’s March World Government Bond Index (WGBI) review.
“Malaysia will start the first phase of its vaccine programme by end-February (for frontliners), the second phase in April (for high-risk groups), and the third phase in May (for aged 18 and above).
“We think the current global landscape (ie, 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 ringgit against the US dollar. We reiterate our US dollar/ringgit forecast of 4.00 by mid-2021 and 3.95 by year-end, ” the research added.