PETALING JAYA: Malaysia’s international reserves level is expected to remain steady in the coming months despite falling by US$900 million to US$103.4 billion in the two weeks ended Feb 28.
Affin Hwang Capital said this is because the country’s trade balance and current account remain in surplus.
The research house believes the drop in international reserves was attributed to net foreign outflow from the domestic bond market, which saw an RM8.1 billion outflow in the second half of February, the first outflow since October last year, against a net inflow of RM3.6 billion reported in January.
“Bulk of the net outflow was seen in Malaysian Government Securities (MGS) and Government Investment Issue (GII) which fell by RM7.1 billion and RM500 million,” it said in a report.
In February, the three-year and the 10-year MGS yield fell by 25bps and 31bps to 2.6% and 2.8%, respectively partly due to “flight to safety” over concerns about the Covid-19 outbreak as well as some political uncertainties during the latter part of the month.
It highlighted that in the domestic equity market, net outflows continued for the eighth consecutive month by RM2 billion in February (against an outflow of RM100 million in January), its largest monthly net outflow since August 2019.
Meanwhile, in the first two months of 2020, net outflows from the equity market amounted to RM2.1 billion compared to a net inflow of RM200 million in the same period last year.
Affin Hwang expects some potential outflows to arise from downside risk from uncertainties around Malaysia’s economic growth prospects due to the impact from Covid-19.
“As a result, we expect inflows into the Malaysian market in the near term will likely be limited especially if the number of confirmed cases outside of China continues to rise. Therefore, we project international reserves to hover around US$100- US$105 billion by end-2020 (US$103.6 billion as at end-2019).”
