KUALA LUMPUR (July 9): Malaysia's overall foreign portfolio flows in June turned negative for the first time in nine months to RM1.7 billion, mainly contributed by substantial net selling of Bank Negara Malaysia (BNM) Bills and Treasury Bills, UOB Research said.
During the month, foreign investors sold RM500 million in Malaysian debt securities compared with a net purchase of RM1.9 billion in May, which was also the lowest inflow since September 2020.
In its research note today, UOB Research said elevated inflationary pressure worldwide, risk of earlier US Federal Reserve rate hike and rising global debt burden are expected to tame non-resident portfolio flows into emerging markets in the near term.
"This alongside some negatives at home (i.e. high Covid-19 cases with more infectious strain and fluid political situations) may continue to affect the MYR's performance," the note read.
Despite the net selling, foreign holdings of Malaysian government bonds in 2021 rose at the fastest pace in five years by RM20.9 billion, to a sum of RM223 billion or 25.1% of total outstanding papers at end-June.
These comprised RM192.1 billion Malaysian Government Securities and RM30.8 billion of Government Investment Issues.
Notably, Malaysia's foreign debt flows in the second quarter of 2021 (2Q21) of RM7.73 billion was the weakest since the negative flow in 1Q20 when the nation first experienced the Covid-19 pandemic and the ensuing movement control orders.
Concurrently, Malaysian equities also saw further net selling of RM1.2 billion in June, from RM200 million the month before. This left foreign holdings at 20.3% of total market capitalisation at the end last month, UOB Research said.
On a related matter, BNM foreign reserves rose to their highest in six-and-a-half years, of US$111.1 billion, after its third consecutive month of increase. It recorded an increase of US$3.5 billion in the first half of 2021 — its biggest six-month gain in a decade.
"This came on the back of a sustained current account surplus, persistent foreign portfolio inflows into the debt market, and continued foreign direct investment," UOB Research said.
"While BNM has yet to publish its June FX swaps data, the central bank's net short position in FX swaps narrowed for the first time in five months by US$0.6 billion month-on-month to US$8.3 billion or 7.5% of total foreign reserves as at end-May," it said.
At the time of writing, the ringgit was trending weaker at 4.1895 against the US dollar, after trading at 4.1815/4.1925 earlier against the greenback. Malaysia will release its 2Q21 gross domestic product results on Aug 13.