KUALA LUMPUR (June 12): The outflow of foreign funds from Malaysia persisted in May, albeit at a smaller pace of RM1.5 billion compared to the RM4.7 billion seen in April, supported by the purchase of domestic government bonds amid optimism on the reopening of the economy and carry-trade flows, according to UOB Economics & Markets Research.
“Foreigners bought net RM1.5 billion of Malaysian bonds but sold RM3 billion [worth] of domestic equities last month,” its senior economist Julia Goh and economist Loke Siew Ting wrote in a report today.
This marks the fourth consecutive months of foreign selling in Malaysian bonds and equities, they said.
Prior to this, only January showed positive foreign funds, with inflows of RM3.4 billion. The trend reversed to negative, with foreign funds recording outflows of RM10 billion in February, which increased further to RM17.8 billion in March — the highest foreign outflow recorded since May 2018.
For the January to May period, foreign outflows amounted to RM30.7 billion.
As at May, total debt securities held by foreigners stood at RM187.3 billions. During the month, foreigners bought mainly Malaysian Government Securities (MGS) worth RM1.9 billion and Malaysian Islamic Treasury bills worth RM70 million; they sold Government Investment Issues (GII) worth RM0.5 billion.
For MGS alone, foreign holdings rose to RM149 billion or 35.9% of total MGS outstanding, while foreign holdings of GII fell to RM18 billion or 5.2% of total GII outstanding. In total, foreign holdings of government bonds (MGS & GII) rose by RM1.4 billion to RM167 billion or 21.2% of total outstanding in May.
Meanwhile, total foreign outflow from Malaysian equities for the January to May period now stands at RM13.3 billion, with the RM3 billion worth of domestic equities sold by foreign funds in May, up from the RM2.7 billion sold in April.
As a result, foreign ownership of Malaysian equities edged down to 21.7% of total market capitalisation last month, compared with April's 22%.
The foreign sell off was offset by strong domestic retail participation, the two economists said. Domestic retail participation rose sharply with net purchases of RM2.5 billion in May, compared with net purchases of RM2.1 billion in April.
This brings the year-to-date retail net purchase to RM13 billion during the January to May period, up 181% from RM4.6 billion recorded in the same period last year.
The economists also noted that Bank Negara Malaysia’s (BNM) foreign reserves rose US$0.4 billion month-on-month to US$102.9 billion as of end-May, compared to US$102.5 billion in April. "Despite a trade deficit of MYR3.5 billion recorded in April, which was the first monthly trade deficit since 1997, foreign reserves rose for two straight months in April and May as portfolio outflows ebbed," they wrote.
While BNM has yet to publish its May FX (foreign exchange) swaps data, the duo said the central bank’s net short position in foreign exchange swaps narrowed by US$0.5 billion to US$2.7 billion as at end-April, which is equivalent to 12.4% of total foreign reserves.
“While the ringgit has rallied modestly with the pick-up in global risk appetite from 4.35 against the US dollar in early June to about 4.27 against the US dollar, further gains from here may take on a more measured pace,” said the economists.
"Key risks include a renewed spike in infections that may reintroduce a tightening of movement restrictions. We also noted a much reduced sensitivity of the ringgit to recovering oil prices in the last couple of months. Key headwinds include a weak recovery post-MCO, and lingering unemployment together with potential political risks.
"Externally, the escalating US-China tensions may also curb enthusiasm in Asian assets as a whole, the ringgit included," the duo added.