Malaysia bonds market recorded highest foreign portfolio inflows last year since 2013

KUALA LUMPUR (Jan 9): Malaysia bonds continued to attract foreign portfolio inflows for the second straight month in December bringing full-year flows to a six-year high of RM8.8 billion in 2019.

In a note today, SG-UOB Global Economics and Markets Research said in the final month of 2019, foreign investors continued to enter Malaysia’s bond markets with RM8.1 billion in December (November: +RM8 billion).

Meanwhile, the foreign outflows from Malaysian equities persisted despite net selling narrowing to RM1.1 billion in December.

The breakdown by type of debt securities showed that the bulk of funds entered government bonds, which are Malaysian Government Securities (MGS) and Government Investment Issues (GII).

SG-UOB noted there were some flows into private debt securities while Treasury bills recorded net outflows.

It said strong foreign purchases of Malaysian debt securities (2019: +RM19.9 billion; 2018: -RM21.9 billion) were the sole contributor to overall foreign portfolio inflows last year, which was more than enough to offset foreign outflows from the Malaysian equity market (2019: -RM11 billion; 2018: -RM11.7 billion).

“Foreign shareholdings of Malaysian government bonds (MGS & GII) rebounded close to the pre-general election high of 24.3% as at end-December 2019 (May 2018: 24.9%; end-2018: 22.7%).

“Conversely, foreign ownership of Malaysian equities slid to its lowest level in more than two and a half years (November 2019: 22.6%; end-2018: 23.4%),” SG-UOB said.

It said Bank Negara Malaysia’s foreign reserves ended 2019 at a five-year high of US$103.6 billion given the record foreign portfolio inflows, higher current account surplus and sustained net foreign direct investments.

The latest reserves position is sufficient to finance 7.5 months of retained imports and is 1.1 times short-term external debt.

While Bank Negara has yet to release its December 2019 foreign exchange (FX) swaps number, the central bank’s short position in FX swaps narrowed by US$600 million to US$13.3 billion as at end-November 2019 (end-October 2019: +US$200 million to US$13.8 billion).

November’s FX swap short position was equivalent to 12.9% of total foreign reserves.

SG-UOB added that despite the ringgit recovering by 1% to 4.091 against the US dollar in 2019, lingering trade conflicts and heightened geopolitical tensions could weigh on the ringgit.

“The escalating US-Iran tensions and pending Phase One trade deal between the US and China have pushed up USD/ringgit to close at 4.1010 yesterday (Jan 8),” it said.

Source: TheEdgeMarkets