Foreign ownership of Malaysian equities at all-time low end-July

Foreign ownership of Malaysian equities dropped to an all-time low of 20.2% of total market capitalisation as at end-July, says UOB Global Economics & Markets Research.

KUALA LUMPUR: Malaysia recorded an increase in foreign portfolio outflows totalling RM5bil in July as foreign funds continued to reduce their stakes in local equities and debt securities due to local and external factors.

UOB Global Economics & Markets Research said on Tuesday overseas investors continued to pare down their holdings of Malaysian equities for 25 months in a row.

“Foreign ownerships of Malaysian equities dropped to an all-time low of 20.2% of total market capitalisation as at end-July (end-June: 20.3%; end -2020: 20.7%; end-2019: 22.3%),” it said.

Overall, it said foreign portfolio outflows rose to RM5bil in July from June: -RM1.7bil; May: +RM1.7bil.

It said foreign funds sold Malaysian equities for 25 months in a row (July: -RM1.3bil; June: -RM1.2bil) and Malaysian debt securities by the most since March 2020 (July: -RM3.6bil; June: -RM500mil).

UOB Research pointed out debt instruments that succumbed to foreign selling last month were Malaysian Government Securities (MGS, -RM3.6bil), Treasury Bills (-RM600mil), and private Sukuk (-RM50mil).

It cited the volatility of capital flows in emerging markets has increased significantly since June. Among the factors were the US Federal Reserve moving closer to the quantitative easing tapering, renewed uncertainty around Covid-19 infections and China’s regulatory crackdown spark concerns over a softer global growth momentum ahead.

“Constrained fiscal space and fluid political situations at home further present challenges to Malaysia’s foreign portfolio flows and subsequently undermine the near-term outlook for the ringgit,” it said.

UOB Research also noted that year-to -date (YTD), foreign holdings of Malaysian government bonds (MGS & GII) declined for the first time in 15 months by RM3.2bil to RM219.8bil as at end-July (end-June: +RM700mil to RM223bil).

Due to the decline, foreign shareholdings of Malaysian government bonds fell to a five-month low of 24.6% (from 25.1% in June).

For MGS alone, foreign investors held RM188.6bil or 40.4% of total MGS outstanding as at end-July (end-June: RM192.1bil or 40.4%).

For GII, overseas investors further increased their holdings to RM31.2bil, or equivalent to 7.8% of total GII outstanding last month (from RM30.8bil or 7.9% as at end-June).

As for foreign reserves, it said they remained at the highest since December 2014. Bank Negara Malaysia’s foreign reserves rose by just US$1.3mil on-month to US$111.10bil as at end-July (end-June: +US$200mil on-month to US$111.099bil), keeping its highest level since Dec 2014.

The latest reserves position is sufficient to finance 8.1 months of retained imports and is 1.1 times total short-term external debt. YTD, foreign reserves jumped by US$3.5bil in the first seven months

of 2021, marking the largest gain since January-July 2017 when it increased by US$4.9bil (January-July 2020: +US$600mil).

UOB Research also said while Bank Negara has yet to publish its July forex swaps data, the central bank’s net short position in forex swaps narrowed for the second straight month by US$600mil on-month to US$7.8bil or 7% of total foreign reserves as at end-June (end-May: -US$600mil on-month to US$8.3bil or 7.5% of total foreign reserves).