Foreign holdings of M’sian debt rise to 22-month high

O Net inflow of RM3.6 billion in January brings total to RM208.2 billion, following rate cuts and positive trade news from abroad: Kenanga Research

PETALING JAYA: Foreign investors continued to be net buyers of Malaysia’s debt securities for the third successive month in January with an inflow of RM3.6 billion.

This brings total foreign debt holdings to a 22-month high of RM208.2 billion, according to Kenanga Research.

The research house attributed the inflow to the continued risk on mode following a slew of policy rate cuts by the central banks in the advanced economies along with positive developments from the US-China phase one trade deal.

“Inflow was driven by a net increase in holdings of Malaysian Government Securities (MGS), offsetting the decline in Malaysian Government Investment Issues (GII) and Private Debt Securities (PDS),” it elaborated in a report.

Kenanga highlighted that January saw MGS foreign holdings inflow of RM3.3 billion from

RM5.5 billion in December, which resulted in foreign holdings share of total MGS edging up to 41.7%, the highest in 20 months.

On the other hand, GII and PDS saw outflows of RM100 million each, with foreign holdings of 6.1% and 1.8%, respectively.

Kenanga Research said foreign investors remained as net sellers of Malaysian equities for seven straight months with January registering an outflow of RM100 million.

“The overall capital market registered a sustained inflow of foreign funds (+RM3.4 billion) in January thanks to the large inflows into the bond market.”

Going forward, the research house expects inflows to sustain particularly in the first half of 2020 amid a low interest rate environment brought about by the global accommodative monetary stance and a risk-on mode following the US-China trade truce.

“Besides, fiscal measures by the federal government and the revival of mega infrastructure projects will further support the debt capital market. These factors might lift the ringgit to near the 4.00 level against the US dollar, but we expect it to settle at 4.10 by end2020.”

Against this development, Kenanga said the US 10-year Treasury note average yield dropped to 1.72% in January, a decline of 14 basis point (bps).

“On a similar trend, the benchmark Malaysian 10-year MGS average yield edged down by 17 bps to 3.23%, expanding the average yield spread to 162 bps (Dec: 150 bps).”

On the whole, the research house expressed that a cautious growth outlook remains in spite of easing US-China trade tensions, as downside risks from the external front persist, especially with regard to the impact of the coronavirus outbreak, slower global trade momentum and rising geopolitical tensions.

“Along with further weakness in domestic demand, we reckon that the Bank Negara Malaysia may embark on another overnight policy rate cut of 25 basis points to 2.5% in March or May Monetary Policy Committee meeting,” it said.