This article first appeared in The Edge Financial Daily on December 9, 2019

KUALA LUMPUR: Malaysia’s debt market in November recorded a net foreign inflow of RM6.5 billion — versus a net outflow of RM1 billion in October — which pushed foreign ownership of Malaysian Government Securities (MGS) and Government Investment Issues (GII) to its highest since October 2018.

The inflow was driven by hefty foreign purchases of debt securities in the month that amounted to RM8 billion, in contrast to the RM500 million sold in October, UOB Malaysia senior economist Julia Goh and her colleague, economist Loke Siew Ting, wrote in a note last Friday.And all types of Malaysian debt securities, except for treasury bills, garnered increased foreign buying interest, the duo noted, with MGS the biggest beneficiary, attracting RM4.7 billion of foreign purchases, in contrast to the RM400 million sold in October. “This was followed by GII (November: RM3 billion; October: RM50 million) and private debt securities including private sukuk (November: RM400 million; October: RM200 million). Treasury bills, however, continued to record foreign selling, albeit moderate, for the second month by RM90 million (October: -RM300 million),” the duo wrote.

The return of overseas investors’ interest caused foreign ownership of MGS and GII to surge by RM7.7 billion — the most in 26 months — to RM176.8 billion in November, which is equivalent to 23.4% of total outstanding, marking the largest foreign shareholding since October 2018. Foreign ownership of MGS and GII declined by RM400 million in October to RM169.1 billion, or 22.2% of total outstanding.

“By individual instrument, foreign holdings of MGS jumped to RM158.4 billion or 40.5% of total outstanding (from RM153.8 billion or 37.9% in October), while that of GII increased to MYR18.4 billion or 5.4% of total outstanding (from RM15.4 billion or 4.7% in October). Year to date, foreign investors bought RM11.8 billion worth of Malaysian debt securities in January-November 2019, snapping a two-year streak of debt outflows (January-November 2018: -RM19.6 billion; January-November 2017: -RM10.6 billion),” wrote Goh and Loke.

“The return of foreign portfolio inflows last month was in line with the portfolio inflow trend in emerging markets (EMs). A total of US$20.3 billion foreign money flowed into EMs, particularly debt securities, for the third straight month in November (October: US$24.9 billion),” they said. However, foreign investors continued to shy away from Malaysian equities, they noted, with foreigners cutting their holdings by RM1.5 billion in November, after trimming RM500 million in October.

“This brought year-to-date foreign selling of Malaysian equities to RM9.9 billion in January-November 2019 (versus –RM10.7 billion in January-November 2018). Accordingly, foreign ownership of Malaysian equities dropped further to a 32-month low of 22.6% of total market capitalisation last month (from 22.7% in October),” they added.