This article first appeared in The Edge Financial Daily on April 17, 2020

KUALA LUMPUR: The 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 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, the flight to safe haven assets prevailed; domestic bond yields spiked across the board in March,” RAM said in a statement yesterday.

Also, despite Bank Negara Malaysia’s 25 basis points (bps) cut for the overnight policy rate (OPR) on March 3, the benchmark 10-year Malaysian Government Securities (MGS) yield jumped 56.9bps to 3.41% at month-end, translating into the biggest increase since November 2016 (+72.9bps), 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,” it said.

On 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 to RM95 billion, from the initial RM100 billion to 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 the MGS/GII (Government Investment Issues) issuance to rise to RM135 billion to RM145 billion this year, from our previous forecast of RM115 billion to RM125 billion,” it added.