‘HIGHER EQUITY MART INFLOWS BOOST FOREIGN RESERVES’
Positive performance also because of greater exports repatriation, says Kenanga
THE positive uptrend in Bank Negara Malaysia’s foreign reserves is attributed to higher foreign buying in the local equity market and greater exports repatriation, following higher trade surplus.
Kenanga Investment Bank Bhd said in a note the higher reserves also suggested the possibility of foreign direct investments streaming into the economy.
Higher global oil prices could have also renewed investor confidence in the fundamentals of the local economy, diminishing the effects of uncertainties in global trade and monetary policies, noted Kenanga.
Bank Negara’s foreign reserves rose by US$1.7 billion (RM6.7 billion), or 1.6 per cent, to US$109.5 billion last month, expanding for the 16th consecutive month.
The month’s reserves position remains sufficient to finance 7.5 months of retained imports and is 1.1 times the short-term external debt.
Further, Kenanga said foreign equity inflows surged the highest in three months to RM1.3 billion.
The local equity market sustained its strength last month.
The FTSE Bursa Malaysia KLCI surged to a record high of 1,895.18 points on April 19 even as higher United States bond yields and solid US employment data raised expectations for a faster pace of the Federal Reserve’s rate hike.
Kenanga said the ringgit value of the reserves rose the highest in 11 months, by RM6.7 billion, to RM423.1 billion. This could be partially due to a weaker ringgit, which depreciated by 1.5 per cent against the US dollar last month after appreciating 4.9 per cent in the first three months of the year.
On the local bond market, Kenanga said it might not be spared from global uncertainties.
The average local benchmark 10-year Malaysian Government Securities bond yields surged to 4.04 per cent last month compared with 3.95 per cent in March, suggesting limited inflow into the local bond market.
This is in line with rising US bond yields, which touched the three per cent psychological level during the month, averaging 2.88 per cent last month (March: 2.83 per cent).
While the reserves level remains at a healthy level, Kenanga is convinced that foreign interest could be capped in the coming months.
“We see many uncertainties, such as the muchawaited outcome of the 14th General Election, rising US bond yields and trade war risk tempering market sentiments. Recent export figures and manufacturing indicators further point to a moderating growth trend ahead.
“Hence, we expect the interplay of these various dampeners to cap the level of foreign inflows in spite of the expectation that the reserves level would remain on a marginal uptrend, backed by the fundamentals of the economy,” it added.
Recent export figures and manufacturing indicators further point to a moderating growth trend ahead. Kenanga Investment Bank Bhd