Friday 29 Mar 2024
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The intermittent strength seen in Malaysian government securities (MGS) is caused by foreign buying. This suggests an “opportunistic” trading strategy by short-term contrarian traders, according to Affin Hwang Capital Research.

“Some offshore traders could be going long the MGS versus UST [US treasuries] as a spread trade, as current spreads are historically very wide,” said the research house in a fixed income research note today (Jan 14).

It noted that market volume yesterday was sustained, with RM2.932 billion worth of securities traded on foreign buying, despite the ringgit softening to 3.5950 to the US dollar on the back of a further decline in crude oil prices.

“Interest continues to be focused on the 7-year MGS, which saw yields drop 1 basis point to 4.01% as investors were bargain hunting,” observed Affin Hwang, adding that with the Brent/crude oil prices projected to fall to US$40 per barrel, the ringgit could stay under pressure.

The research house sees further weakness in MGS in the long run, but added opportunities for "tactical bargain hunting" could emerge when a correction in the ringgit and oil price occurs. Hence it advised, “Discipline selling into rallies is paramount in preserving capital in an increasing volatile environment.”

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