Foreign holdings of Malaysian government securities (MGS) are likely to stay above 40%, contrary to market fears, after sentiment took a positive turn last month, according to Maybank IB Research.

In December, foreign holdings of total debt securities posted a month-on-month decrease of RM10.6 billion to RM225.9 billion, as foreigners aggressively unloaded positions in discount instruments.

“But against our expectation of seeing accelerated outflows from MGS, foreign holding stayed resilient at RM145.3 billion or 44.1%,” said Maybank IB in a research note dated Feb 4.

The ringgit depreciated by 3.8% against the US dollar in December, which was the second straight month seeing double-digit (in billions) foreign outflows of total debt securities.

“As market sentiment made a turn in January, with the 10-year MGS yields rallying more than 30bps during the month and the desk seeing foreign inflows to MGS, our previous thought of the share of MGS foreign holdings risking the 40% threshold may now look a rather distant possibility,” said Maybank IB.

For the full year of 2014, net foreign outflow in debt securities totalled RM7.5 billion, according to the note. This was the first yearly foreign outflows since 2008 after five years of uninterrupted inflows from 2009 to 2013.

But Maybank IB pointed out that real foreign demand on domestic debt stayed strong as the conventional MGS and Islamic GII still reported year-on-year foreign inflows of RM8.2 billion and RM1.9 billion respectively in 2014, in contrast with RM17.7 billion year-on-year outflows from discount instruments.