Malaysian bond market sees seventh straight month of net foreign inflow in Nov

KUALA LUMPUR (Dec 18): The Malaysian bond market experienced its seventh straight month of net foreign inflow in November at RM1.9 billion, led by Malaysian Government Securities (MGS) and Government Investment Issues (GII) at RM2.7 billion, said RAM Ratings Services Bhd.

In a statement, the agency said solid foreign appetite raised the year-to-date inflow by 25% year-on-year to RM14.8 billion as at the end of November.

“Foreign holdings as a percentage of total bonds outstanding rose to 13.6% — the highest level since January 2020. This was underpinned by improving sentiments and yield hunt amid low global interest rates,” it said.

While foreign demand remained steady, overall yields still grew, said RAM Ratings.

“Investors had likely priced in higher market risk arising from the myriad uncertainties over the US presidential election and domestic political turmoil that had threatened to derail the passing of Budget 2021,” it explained.

Meanwhile, domestic yields were most likely propped up by tighter market liquidity, as the turnover ratio for MGS/GII averaged 0.059 last month, the lowest since December 2018. For comparison, the 10-month average turnover ratio in 2020 was 0.116.

Addressing the Dec 4 sovereign downgrade by Fitch Ratings, the agency said the impact appeared “rather muted and short-lived” as the yields of 10-year MGS which rose slightly at the beginning of the week reversed to end 2.4 basis points lower than the previous week.

“The USD/RM exchange rate also ended the week stronger at 4.055 on Dec 11 from 4.064 the week before. Following Fitch Ratings’ downgrade, investors may be more wary of potentially similar rating actions from the other two rating agencies further down the line. Another downside risk stems from FTSE Russell’s evaluation of Malaysia’s watchlist status at its next review in March 2021,” it said.

Source: TheEdgeMarkets