Foreign investors still buy more Malaysian debt securities than sell

KUALA LUMPUR: Foreign investors remained net buyers of Malaysia’s debt securities for the 10th straight month, with the inflow widening to RM7.2 billion in February from RM3.7 billion in January, said Kenanga Research.

The total foreign debt holdings continued to rise, remaining at its highest level in four years in February at RM233.8 billion from RM226.7 billion in January, as its share to total outstanding debt securities increased 14.3 per cent to a 34-month high in February.

“The increase buoyed by recovery optimism following the gradual relaxation of movement control order (MCO) 2.0 restrictions and the start of Malaysia’s inoculation campaign.

“Foreign investors were also likely attracted to the high yield spreads of local debt, amid a selloff of the United States and developed market treasury bonds,” Kenanga Research said in a report today.

The firm said the larger inflow was mainly driven by a greater net increase in holdings of Malaysian Government Securities (MGS) and Government Investment Issues (GII).

MGS increased to RM3.5 billion in February from RM2.3 billion in January while, foreign holdings share of total MGS increased 41.2 per cent to a 13-month high in February from 40.5 per cent in January.

“GII up RM2.1 billion from RM0.9 billion in January while,foreign holdings share edged up to 7.2 per cent, a 40-month high from 6.8 per cent in January,” it said.

Kenanga Research said for the equity market, foreign investors remained net sellers for the 20th consecutive month.

Foreign selling on Bursa Malaysia continued at a slightly faster pace in February, as investors remained cautious despite an improvement in recovery optimism and the start of Malaysia’s vaccination drive, it said.

“Overall, the capital market registered a greater net foreign portfolio inflow in February (RM6.3 billion) from RM2.8 billion in January, marking five successive months of sustained inflows,” it said.

Meanwhile, Kenanga Research expects foreign inflows to persist in the near-term as high yield differentials keep local bonds attractive, while investors exit from the United States and other developed bond markets during this period of heightened yield volatility.

Furthermore, the wider distribution of vaccines locally and abroad should bolster risk-on sentiment in favour of emerging market bonds, it said.

“The ringgit may be pressured by rising US Treasury yields in the immediate term, however it will likely be supported by a sustained rise in oil prices in the long-term, as such we maintain our year-end US dollar-ringgit forecast at 3.95,” it said.

On the back of improved growth prospects, steady rise in inflation and wider vaccine rollout, the firm expects a higher probability that Bank Negara Malaysia will keep the overnight policy rate (OPR) unchanged at 1.75 per cent for the remainder of the year.

“Nevertheless, we believe there is still room to cut the OPR by at least 25 basis points should the economic outlook worsen,” it added.

Source: NST