KUALA LUMPUR, Jan 11 ― Foreign investors turned net buyers of Malaysia’s debt securities in December last year, totalling RM6.1 billion, after a month of net selling in November for RM3.6 billion.
Total foreign debt holdings increased to RM256.6 billion compared to November’s RM250.4 billion, while its share to total outstanding debt rose to 14.8 per cent, a seven-month high.
Kenanga Investment Bank Bhd, in a research note, said demand was likely driven by the return of global risk-on sentiment as Omicron fears began to subside, following reports that it was less severe than other Covid-19 variants.
“Furthermore, domestic bonds retained high yield differentials against many developed market bonds, keeping them attractive despite monetary policy tightening by major central banks.
“December’s inflow was driven by a sizeable net increase in holdings of Malaysian Government Securities (MGS) and Government Investment Issues (GII), which outweighed a softer rise in holdings of Malaysian Treasury Bills (MTB),” it added.
For the equity market, the research firm noted that foreign investors turned net sellers for the first time in five months, selling a total of RM1.1 billion worth of shares compared to the RM200 million net buy in November.
It said demand for equities may have been hindered by lingering uncertainty over the Omicron variant and the US Federal Reserve’s (Fed) increasingly hawkish tilt, as it quickened the pace of its tapering process.
Overall, Kenanga said the capital market registered its largest inflow in four months amounting to RM5 billion.
Moving forward, the research house said the debt market remains at risk of outflows in the near term as the US Fed may aggressively tighten monetary policy.
The US 10-year Treasury average yield fell by six basis points (bps) to 1.45 per cent in December, while the 10-year MGS average yield remained at 3.55 per cent, raising the average yield spread to 211 bps compared to 205 bps in November, an 18-month high.
The release of the Federal Open Market Committee (FOMC) December’s meeting minutes indicated that the US Fed is considering hiking interest rates earlier and may begin balance sheet reductions soon after, which could impact foreign flows to Malaysia in the near to medium term, Kenanga said.
“Nonetheless, we still expect the bond market to register an overall net inflow in 2022, supported by a strong domestic recovery outlook and relatively high yield differentials.
“Against this backdrop, we are also cautiously bullish on the ringgit’s outlook and forecast the ringgit to reach 4.10 against the US dollar by the end of 2022 compared to 4.17 forecast in 2021.
“We also expect Bank Negara Malaysia (BNM) to keep the policy rate unchanged at 1.75 per cent until at least September 2022, in order to support Malaysia’s ongoing recovery and we remain cautious of lingering Covid-19 risks,” it added. ― Bernama
