PETALING JAYA: Foreign holdings of Malaysian Government Securities (MGS) remained healthy in December 2024, accounting for almost one-third of total MGS in that month.
This is despite a prolonged period of unusual negative spread rate differential between local MGS and US Treasury yields since May 2023, CIMB Securities said.
“Recall the average spread between 10-year local MGS and 10-year US Treasury yields was a positive 165 basis points (bps) before 2022, but fell into a negative spread of 38 bps on average since May 2023 as the Malaysian central bank paused rate hikes.”
However, despite the negative spread, it noted that the correlation coefficient remained strong at 0.86.
“This means that the 10-year MGS yield still tracks that of the 10-year US Treasury yield,” CIMB Securities said in a report.
Correlation coefficient is a statistical measure to assess the degree of association between two variables, and the values can range from minus one to one.
A coefficient of one shows a perfect positive correlation, or a direct relationship.
In December 2024, total foreign holdings of MGS stood at RM204.7bil, up 0.9% from RM202.9bil in December 2023.
“Foreign holdings of MGS still made up a significant 32.3% of total MGS in December 2024, only marginally lower compared with 34.4% in December 2023.”
CIMB Securities kept its “overweight” stance on the local banking sector. Re-rating catalysts are non-interest income bond gains and a possible uplift to loan growth.
The research house highlighted AMMB Holdings Bhd
, Alliance Bank Malaysia Bhd, Malayan Banking Bhd (Maybank), Public Bank Bhd and RHB Bank Bhd as the main beneficiaries of the earnings upgrade.
“Our top picks in the sector are still Hong Leong Bank Bhd (HLBB), AMMB and Maybank. We like HLBB given its solid book value, while concerns over its China operations are likely to dissipate over time.
“AMMB’s valuation remains cheap, with earnings geared towards a pickup in non-interest income and loan growth, while Maybank’s share price will likely be supported by its healthy dividend yield.”
Key risks to its rating are higher-than-expected cost of funds, an outflow of liquidity and if asset quality is worse-than-expected.
