Foreign outflows from Malaysia’s domestic bond market may ease, according to Convera Singapore, as growing expectations of Federal Reserve interest-rate cuts begin to shift investor sentiment.
Global funds withdrew US$1.2 billion from Malaysian sovereign debt last month, the largest outflow since October, as the dollar gained for the first time this year.
Following weaker-than-expected US nonfarm payrolls in July, swap markets now price in at least two Fed rate cuts this year. The prospect of looser US monetary policy and a weaker greenback may boost demand for higher-yielding emerging-market assets like Malaysian bonds - just as domestic inflation cools, with prices in June rising at their slowest pace since February 2021.
"There are signs that the worst of the outflows may be behind us,” said Shier Lee Lim, an FX and macro strategist at Convera.
"For the remainder of the year, the outlook for Malaysia’s bonds will depend on broader emerging market risk appetite, the direction of US interest rates, and clarity on local policy.” - Bloomberg
