KUALA LUMPUR, Malaysia (July 9): According to UOB Research, Malaysia’s overall foreign portfolio flows in June went negative for the first time in nine months, totaling RM1.7 billion, owing to significant net selling of Bank Negara Malaysia (BNM) Bills and Treasury Bills. Foreign investors sold RM500 million worth of Malaysian debt securities during the month, compared to a net purchase of RM1.9 billion in May, the lowest inflow since September 2020.
In a research note released today, UOB Research warned that rising global debt burdens, global inflationary pressures, and the prospect of an earlier US Federal Reserve rate hike are all projected to dampen non-resident portfolio flows into developing markets in the near term.
“This, combined with some downsides at home (such as high Covid-19 patients with more infectious strains and fluid political events), may continue to impact the MYR’s performance,” the note stated.
Despite the net selling, foreign holdings of Malaysian government bonds increased by RM20.9 billion in 2021, to RM223 billion, or 25.1 percent of total outstanding papers at the end of June, the fastest increase in five years.
Malaysian Government Securities were worth RM192.1 billion, and Government Investment Issues were worth RM30.8 billion.
Malaysia’s foreign debt flows of RM7.73 billion in the second quarter of 2021 (2Q21) were the lowest since the negative flow in 1Q20, when the country first faced the Covid-19 outbreak and the resulting movement control orders.
Similarly, net selling of Malaysian equities increased to RM1.2 billion in June, up from RM200 million the month before. According to UOB Research, foreign assets accounted for 20.3 percent of overall market capitalisation at the end of last month.
In a related development, BNM foreign reserves increased for the third month in a row, to US$111.1 billion, the highest level in six and a half years. In the first half of 2021, it increased by US$3.5 billion, the largest six-month growth in a decade.
“This was fueled by a continuous current account surplus, foreign portfolio inflows into the debt market, and increased foreign direct investment,” according to UOB Research.
“While BNM has yet to release its June FX swaps statistics, the central bank’s net short position in FX swaps shrank for the first time in five months to US$8.3 billion, or 7.5 percent of total foreign reserves, as of end-May,” it said.
The ringgit was trading at 4.1895 against the US dollar at the time of writing, following trading at 4.1815/4.1925 earlier in the day. Malaysia’s gross domestic product (GDP) for the second quarter of this year will be released on August 13th./n
