Foreign holdings of Malaysian govt bonds at 25% in March, highest since April 2018

Foreign holdings of Malaysian govt bonds at 25% in March, highest since April 2018
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KUALA LUMPUR (April 8): Foreign holdings of Malaysian government bonds, namely Malaysian Government Securities (MGS) and Government Investment Issue (GII), rose by RM4.4 billion to RM215 billion or 25% of total outstanding in March — the highest share since April 2018.

Foreign investors' holdings of MGS rose RM1.5 billion to RM184.6 billion, equivalent to 40.8% of total MGS outstanding.

Meanwhile, foreign holdings of GII stood at RM30.7 billion, equivalent to 8% of total GII outstanding in March, said UOB Global Economics and Market Research.

"The bond inflows were resilient compared to sharper sell-offs of emerging market debt in March amid steepening yield curves.

"As policy rates are projected to remain flat for 2021 and major central banks are expected to continue bond purchases to smooth out the yield path, we think foreign flows into Malaysia's bonds will remain supported," it said in its Flash Note today.

FTSE Russell's decision to remove Malaysia from its watch list and retain the country in its World Government Bond Index has eliminated a key event risk, and the next to watch is Malaysia's sovereign rating review by Standard & Poors in June, the research house said.

As for equities, it noted that foreign investors continued to pare down their holdings of Malaysian equities in March — albeit at a lesser amount of RM0.1 billion, compared with RM0.8 billion and RM0.9 billion in January and February, respectively.

In the first quarter of 2021 (1Q21), foreigners offloaded RM1.8 billion of local equities compared with RM2.3 billion in 4Q20, it said.

"This marks 21 months of continued selling; a cumulative reduction of RM33 billion since July 2019.

"Foreign ownership of Malaysian equities scaled down to a new low of 20.3% of total market capitalisation in March," it said.

As for foreign reserves, UOB said Bank Negara Malaysia's (BNM) foreign reserves edged down by US$0.4 billion month-on-month (m-o-m) to US$108.6 billion as of end-March (February 2021: +US$0.3 billion m-o-m to US$109 billion).

"However, foreign reserves were still higher by US$1.0 billion year-to-date compared to US$107.6 billion at the end of 2020, supported by sustained foreign portfolio inflows into bond markets and strong current account surplus," it said.

It noted that BNM's latest reserves position is sufficient to finance 8.8 months of retained imports and is 1.2 times total short-term external debt.