SINGAPORE: Investors are snapping up Malaysian bonds without resorting to hedging, supercharging a rally in the country’s currency that’s Asia’s top performer this year.
Global funds bought RM8.1bil of Malaysian government bills and bonds in August, the largest inflows since July 2023, according to Bloomberg calculations based on data from Bank Negara.
This came as hedged investments turned less profitable, spurring a 6% gain in the ringgit last month.
“Foreign bond demand has been largely driven by expectations of ringgit gains, with the bulk of demand probably going in on an foreign-exchange unhedged basis,” said Winson Phoon, head of fixed-income research at Maybank Securities Pte.
Malaysia’s improving economic prospects are making the nation a bright spot in the region, with inflows coming into bonds as well as stocks. That has helped lower bond yields, reducing borrowing costs for the government which is expected to outline next year’s budget on Oct 18.
The correlation between an index of foreign inflows into Malaysian debt and the ringgit has become stronger in the past six months, suggesting a rise in unhedged buying.
An unhedged Bloomberg index of Malaysian bonds has given a total return of 9.74% to dollar-based investors this quarter – the highest in emerging Asia. In comparison, a similar hedged index offered a gain on only 1.7%. Malaysian bond inflows haven’t always translated into gains for the local currency. — Bloomberg
