UOB Research said foreign investor interest showed early signs of recovery in October, with portfolio inflows returning after five months, totalling RM1.7bil.
PETALING JAYA: Capital flow prospects for emerging markets (EM), including Malaysia, are expected to gradually improve heading into 2026, supported by anticipated US Federal Reserve (Fed) rate cuts, a potentially weaker US dollar, and relatively stronger EM growth.
UOB Research noted that policy clarity following recent trade negotiations also helps sentiment, although sector-specific tariffs remain a risk.
The research firm said that in further signs of thawing US-China relations, US President Donald Trump and Chinese President Xi Jinping agreed to a one-year trade truce at their meeting in South Korea on Oct 30, creating space for further negotiations and reducing immediate risks of escalation.
For Malaysia, UOB Research said stability was further reinforced by the signing of the Agreement on Reciprocal Trade with the United States on Oct 26.
“Business groups have generally expressed optimism about the agreement, as it supports Malaysia’s industrial transformation and provides a pathway to attract higher-value US investments,” it said.
UOB Research also said that the agreement reflected Malaysia’s “pragmatic diplomacy – balancing major foreign relations while promoting clarity, stability and investor confidence.”
The research house said these external tailwinds, combined with domestic initiatives under the 13th Malaysia Plan, Budget 2026 and strong tourism ahead of Visit Malaysia 2026 are expected to support the ringgit.
It projects the ringgit to strengthen to 4.13 against the greenback by mid-2026 and 4.07 by end-2026, from an estimated 4.18 at end-2025.
UOB Research said foreign investor interest showed early signs of recovery in October, with portfolio inflows returning after five months, totalling RM1.7bil.
This was following an outflow of RM6.8bil in the previous month.
This was driven entirely by non-resident purchases of debt securities amounting to RM4.4bil, which helped offset renewed selling in equities of RM2.7bil.
Nevertheless, the research house said Malaysia still recorded total foreign portfolio outflows of RM2.6bil in the first 10 months of 2025, reversing the inflows of RM9.1bil during the same period in 2024.
“It was solely weighed by equity outflows (net sell of RM19.1bil), fully outpacing the inflows into the debt securities market (net inflow of RM16.5bil).”
Meanwhile, Bank Negara Malaysia’s (BNM) foreign reserves rose to US$123.8bil at end-October, the highest level since 2014.
“This brings the year-to-date accumulation to US$7.6bil in the first 10 months of 2025, exceeding the US$4.1bil gain in the same period of 2024.”
While the central bank has yet to release the foreign-exchange (forex) swap data for October, UOB Research highlighted that BNM’s net short position in forex swaps declined to its lowest level in more than three years.
“Its net short position in forex swaps fell by US$400mil month-on-month to US$20.8bil in September, marking the lowest level in 37 months,” said the research outfit.
