PETALING JAYA: Foreign investors remained as net sellers of Malaysian debt securities in December 2018, but the pace of selling moderated as total foreign holdings dropped only 1.2% month on month to RM184.8 billion, less than the 2.7% decline in the previous month, according to Kenanga Research.
Consequently, the share of total foreign holdings of Malaysia’s debt inched lower to 13.3% (November: 13.5%), marking its lowest share since April 2010.
For 2018, total net foreign bond holdings fell markedly by RM21.9 billion (2017: -RM8.0 billion). The selloff occurred against a backdrop of financial market turmoil amid ongoing trade war concerns, tumbling global oil prices and monetary policy tightening in the US and other advanced economies.
Kenanga Research said December’s fall was largely due to a net decline of Malaysian Government Securities by RM1.5 billion (November: -RM5.4 billion), pulling down foreign holdings share of total MGS to 38.4%, the lowest since November 2011, as well as by a net decline of Malaysian Treasury Bills (MTB) by RM1.2 billion (November: -RM0.1 billion), tilting the foreign holdings share of total MTB down to 60.4%. The moderation has more than offset a net increase of Government Investment Issues (GII) by RM1.0 billion (November: +RM0.2 billion), bringing the foreign holdings share of total GII higher to 5.2%.
Nevertheless, it noted that pullout of funds by foreign investors was less compared to the previous month, given a firmer dovish stance signalled by the US Federal Reserve.
“While the Fed hiked interest rates by 25 basis points (bps) to 2.25%-2.50% at its December Federal Open Market Committee meeting, it has sent a dovish signal to the market by slashing growth, inflation and rate outlook. “
The outflow of portfolio funds is expected to persist this year, according to Kenanga Research, albeit at more moderate pace, due to looming risk averse sentiments in relation to trade war and growth concerns, as the punitive measures enacted thus far started to take a toll on business activities, evidenced by moderation in trade activities of regional and advanced economies and unfavourable manufacturing Purchasing Managers’ Index figures in both the US and China.
“As domestic indicators are pointing towards growth moderation and as inflation is expected to remain benign on the back of subdued global oil prices, we believe Bank Negara Malaysia (BNM) will hold the Overnight Policy Rate (OPR) unchanged at 3.25% in 2019,“ the research house said in a report today.
Nonetheless, if external uncertainty turned for the worse, it said BNM may gradually turn dovish or perhaps cut interest rates to stimulate the economy.
“However, the probability for that to happen is low for now. As for ringgit’s performance, a more cautious Fed is expected to dominate the outlook signalling a weaker dollar and hence a firmer ringgit, supporting our year-end forecast of US dollar/ringgit at RM4.10 (end-2018: 4.13).”
