Analysts optimistic on foreign fund flows prospects into debt market

KUCHING: Analysts are optimistic about the foreign fund f lows into Malaysia’s debt market, supported by the country’s sound economic fundamentals.

In a report, the research arm of Kenanga Investment Bank Bhd ( Kenanga Research) overall maintained an optimistic outlook for the prospects of foreign fund f lows into the domestic debt market, supported by sound economic fundamentals.

“We see solid current account surplus, benign inf lation outlook along with prudent fiscal position resulting from government fiscal consolidation initiative to underpin healthy capital inflows in the domestic debt market this year.”

It expected the ringgit to remain on a strong footing and gradually appreciate against other major currencies apart from the US dollar such as British pound, Singapore dollar, Aussie dollar and the Japanese yen.

“Nevertheless, we may also see a more volatile ringgit mainly affected courtesy of at least three rate hikes by the US Fed this year.

“Hence, we may see the US dollar-ringgit pair trading in a wider range between 3.95 and 4.10 in the the first quarter of 2018 (1Q18),” it said.

Meanwhile, on Malaysia’s bond f lows in December, Kenanga Research noted that Malaysian debt securities saw a second month of net foreign buying activities in December.

“Foreigners purchased a net RM2.7 billion of Malaysian debt securities in December, though it was lower than the RM6.7 billion recorded in the preceding month.

“Consequently, total share of foreign holdings in Malaysian debt securities edged up to 16 per cent from 15.9 per cent in November.

“Despite the RM6.6 billion net foreign inflows recorded in 4Q17, the Malaysian debt market registered a net foreign capital outflow of RM8 billion for the whole of 2017, mainly due to the large net outflows of RM37.4 billion in 1Q17,” it explained.

It pointed out that the overall inf lows were mainly driven by a solid MGS net inflows of RM4.1 billion ( RM7.1 billion in November) and Government Investment Issues ( GII) of RM0.6 billion ( down RM1.9 billion in November).

“As a result, foreign holdings of MGS rose to 45.1 per cent, the highest in eleven months. Nevertheless, foreign holdings in Bank Negara Monetary Note ( BNM) declined RM1 billion in part due to some scheduled redemption activity for the month,” it noted.

Never theless, Kenanga Research highlighted, “The positive fund flows data in December suggests that foreign investors appear to still favour Malaysian financial assets triggering an appreciation of the ringgit which in turn attracts more foreign investors to supplement their capital gain.”