KUALA LUMPUR (April 16): Foreign selling of Malaysian bonds and equities rose to RM17.8 billion in March 2020, amid mounting recession fears triggered by the Covid-19 pandemic, according to RAM Rating Services Bhd.

Of that, Malaysian bonds saw a RM12.3 billion sell-off which overshadowed the RM8.1 billion outflow seen in February, while foreign selling in the equity market rose to RM5.5 billion. The sell-offs seen in both markets were the highest since May 2018.

"Even as central banks continued slashing rates and easing monetary policies, flight to safe-haven assets prevailed; domestic bond yields spiked up across the board in March,” RAM said in a statement today.

And despite Bank Negara Malaysia’s 25 basis point (bps) cut for the Overnight Policy Rate (OPR) on March 3, the benchmark 10-year Malaysian Government Securities (MGS) yield jumped 56.9 bps to 3.41% at month-end, translating to the biggest increase since November 2016 (+72.9 bps), it noted.

"That said, panic selling appeared to have abated somewhat by early April, as domestic yields showed signs of flattening. This could be in response to the massive liquidity-boosting initiatives by the US Federal Reserve and the European Central Bank, along with the prospect of further OPR cuts in the coming months.

“This could be in response to the massive liquidity-boosting initiatives by the US Federal Reserve and the European Central Bank, along with the prospect of further OPR cuts in the coming months,” it said.

As for demand for financing, RAM believes it may well ebb this year, given the expected economic contraction and potential delays in projects as well as reduced capital expenditure by companies.

“We have revised our projected corporate bond issuance for 2020 to RM80 billion-RM95 billion, from the initial RM100 billion-RM110 billion. On the other hand, we expect government financing requirements to increase, driven by the need to fund the country’s wider fiscal deficit arising from the Government’s various stimulus packages.

“RAM expects MGS/GII (Malaysian Government Securities/Government Investment Issues) issuance to rise to RM135 billion-RM145 billion this year, from our previous forecast of RM115 billion-RM125 billion,” it added.