KUALA LUMPUR, Dec 8 — Foreign holdings of Malaysian government bonds (MGS & GII) increased by RM 2.7 billion to a four-year high of RM198.4 billion in November, leading debt securities to mark the seventh month of net foreign inflows entering domestic bonds.
UOB Bank, in a research note today, said this will help offset continued outflows from Malaysian equities amounting at RM 24.1 billion.
“Foreign inflows primarily entered Malaysian government securities that lifted foreign holdings of MGS and GII by 23.9 per cent of total outstanding in November,” it said.
It added that following Fitch Ratings’ downgrade of Malaysia to BBB+, the bank said the mild sell off was a temporary knee-jerk reaction underpinned by firmer 2021 domestic growth outlook, sustained low interest rates, mild bond supply concerns next year, and expectations of broad dollar weakness.
Malaysia’s international reserves position, which is now at two-and-a-half-year high at US$105.3 billion (RM428.4 billion) as at end-November and sufficient to finance 8.6 months of retained imports, is 1.2 times total short-term external debt.
“Further debt inflows, foreign direct investment, and sustained current account surplus are likely to be the main drivers of foreign reserves,” it said.
Meanwhile, Kenanga Research, in its Economic Viewpoint, said broad dollar weakness and favourable yield differential will continue to drive Malaysia’s debt securities.
“For the equity market, foreign investors remained as net sellers for 17 straight months as foreign selling on Bursa Malaysia increased in November, the biggest in two months, partly due to the MSCI index rebalancing activities.
“Overall, the capital market registered a smaller net foreign inflow of RM900 million, marking two straight months of expansion,” it said.
On Fitch’s downgrade on sovereign credit, it said the debt market will likely experience reduced foreign demand in the short term but would not leave a significantly impact on the market’s long-term stability.
“Foreign inflows are expected to persist in the near term on the back of global risk-on sentiment as Covid-19 vaccine optimism may continue to boost investors’ risk appetite and drive risky assets higher.
“As such, the ringgit is also positioned to benefit from the persistent weakness in the US dollar and improving crude oil prices,” it said.
On the overnight policy rate, the investment bank said Bank Negara Malaysia (BNM) would keep the overnight policy rate unchanged at 1.75 per cent on the back of improving economic conditions and positive vaccine sentiment.
The central bank will conduct its first 2021 monetary policy committee meeting on January 20. — Bernama