PETALING JAYA: Foreign investors returned to Malaysia’s bond market in September despite market caution ahead of FTSE Russell’s announcement with a net buying of RM900 million.
This compares with RM90 million net selling recorded in August, said UOB Research.
Foreigners have bought RM4.3 billion worth of Malaysian bonds in the first nine months of this year, against net outflows over the last two years whereby RM22.2 billion was sold in January-September 2018 and RM14.5 billion in January-September 2017.
FTSE Russell retained Malaysia in its bond index but still kept Malaysia on the watch list until the next review in March 2020.
“As such, the announcement was neutral as markets refocus on US-China trade talks and the next Federal Open Market Committee (FOMC) meeting on Oct 29-30 which could be a potential trigger for another risk-off episode,” said the research house.
“We reiterate our US dollar/ringgit forecasts of 4.19 by end-2019 and 4.26 by mid-2020,” it added.
In September, most of the buying was concentrated in Malaysian Government Securities (MGS) (RM500 million), treasury bills (RM300 million), private debt securities including private sukuk (RM100 million) and Government Investment Issues (GII) (RM50 million).
Foreign holdings of Malaysian government bonds (MGS & GII) rose RM500 million to RM169.5 billion or 22.1% of total outstanding in September.
In Q3 19, foreigners bought RM6.5 billion worth of bonds but sold RM3.2 billion worth of equities.
Meanwhile, foreign reserves fell US$0.5 billion to US$103 billion as at end-September, which is sufficient to finance 7.6 months of retained imports and is 1.1 times short-term external debt.
The research house said that foreign reserves remains supported by stable current account surplus and sustained foreign direct investments while foreign portfolio outflows ebb.
Year-to-date, foreign reserves rose US$1.6 billion in January-September.
Meanwhile, UOB said foreign selling of equities narrowed to RM600 million in September compared with a net selloff of RM2.6 billion in August.
This brought year-to-date foreign selling of Malaysian equities to RM7.9 billion.
“Foreign portfolio flows into Malaysia’s capital markets turned around to a net inflow of RM3.3 billion in Q3 19, mainly due to higher bond inflows of RM6.5 billion which offset equity outflows of RM3.2 billlion in Q3.
