An­a­lysts see in­creased for­eign fund in­flows

New Straits Times - - Business / News -

KUALA LUMPUR: There could be greater flow of for­eign funds into Malaysian debt se­cu­ri­ties af­ter the United States Fed­eral Re­serve (Fed) ap­pears to be less com­mit­ted to rais­ing in­ter­est rates any­time soon.

The Fed’s dovish tone was amid grow­ing signs of a weak econ­omy and a dis­si­pat­ing Pres­i­dent Don­ald Trump re­fla­tion trade, said Ke­nanga In­vest­ment Bank Bhd (Ke­nanga IB).

The mar­ket was some­what sur­prised when the Fed’s tone was more dovish than what it had ex­pected, said Ke­nanga IB.

The Fed ac­knowl­edged that in­fla­tion had been on a mod- er­at­ing trend and ex­pected to re­main be­low its two per cent tar­get.

“The mar­kets have started to fac­tor in a higher pos­si­bil­ity of a de­lay in Fed’s rate nor­mal­i­sa­tion sched­ule. Due to this, one of the most notable im­pacts would be another ma­jor shift of funds to­wards higher-yield­ing as­sets, mainly in the emerg­ing debt mar­kets. This could raise the flow of for­eign funds into Malaysian debt se­cu­ri­ties in the short to medium term,” said Ke­nanga IB.

Given the lin­ger­ing risk in the global econ­omy, the firm ex­pects for­eign port­fo­lio in­flows to be in­clined to­wards shorter gov­ern­ment bond tenures.

The long-term gov­ern­ment se­cu­ri­ties are ex­pected to still at­tract some in­ter­est, mainly from in­sti­tu­tional in­vestors, i.e. cen­tral banks as well as pen­sion and in­surance funds.

For­eign hold­ings of Malaysia’s gov­ern­ment debt se­cu­ri­ties (MGS) ex­pe­ri­enced a mild out­flow in June, fol­low­ing two con­sec­u­tive months of cap­i­tal in­flows, said Ke­nanga IB.

For­eign net sell­ing of gov­ern­ment debt se­cu­ri­ties was just RM400 mil­lion for the month fol­low­ing a net in­flow of RM9.9 bil­lion in May. The year-to­date (end-June) cap­i­tal out­flows still stood at RM21.9 bil­lion.

MGS turned out to be the only gov­ern­ment se­cu­ri­ties that saw net sell­ing by for­eign funds in June. To­tal for­eign own­er­ship of MGS de­clined by RM900 mil­lion in June (May: up RM8.9 bil­lion). As a re­sult, share of for­eign hold­ings of MGS mod­er­ated slightly to 41.2 per cent from 41.8 per cent in May.

In con­trast, for­eign hold­ings of all other gov­ern­ment debt in­stru­ments saw a sta­ble and pos­i­tive net in­crease: Gov­ern­ment In­vest­ment Is­sues (RM90 mil­lion); Malaysia trea­sury bills (RM300 mil­lion); Bank Ne­gara Malaysia bills (RM30 mil­lion).

The mar­kets have started to fac­tor in a higher pos­si­bil­ity of a de­lay in Fed’s rate nor­mal­i­sa­tion sched­ule. KE­NANGA IB

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