KUALA LUMPUR (April 8): Malaysia has recorded its largest monthly foreign outflow in two years of RM17.8 billion in March, from RM10.1 billion in February 2020, as the unabating Covid-19 fears triggered outflows from emerging markets, according to UOB Economics & Markets Research.

This marked the highest monthly outflow since May 2018.

Foreigners sold net RM12.3 billion of Malaysian bonds and RM5.5 billion of domestic equities last month, said its senior economist Julia Goh and economist Loke Siew Ting in a report today.

The foreign selling this month brings the amount of outflows to RM24.5 billion in the first quarter of this year (1Q20), which more than offset the inflows of RM12.3 billion in the previous quarter.

Total debt securities held by foreigners stand at RM187.8 billion as at March 2020, said the economists, adding that foreigners sold mainly Malaysian Government Securities (MGS) of RM12.5 billion and private debt securities of RM200 million in March.

For MGS alone, foreign holdings fell to RM147.6 billion or 36.8% of total MGS outstanding in March from RM160.1 billion or 39.6% in the previous month, while that of Government Investment Issues (GII) inched up slightly to RM20.5 billion or 5.7% of total GII outstanding from RM20.4 billion or 5.8% in February.

Meanwhile, with foreigners selling RM5.5 billion worth of equities in March, this brought foreign outflows from Malaysian equities to RM7.6 billion in 1Q20, compared with RM3.2 billion in 4Q19.

“Despite the selloff, foreign ownership of Malaysian equities remained stable at 22.3% of total market capitalisation last month,” said the economists.

Bank Negara Malaysia’s (BNM) foreign reserves fell to US$101.7 billion as at end-March — the largest monthly decline in 21 months — from US$103.4 billion as at end-February, largely due to sharp portfolio outflows in March that resulted in a 1.8% month-on-month depreciation in the ringgit against the US dollar to 4.30 last month, from 4.23, UOB Research added.

Nevertheless, the research firm said the March sell-off is not as steep as experienced during the worst points of the global financial crisis. “It is likely due to the lower foreign holdings of Malaysian debt and equities prior to the Covid-19 pandemic given cumulative selling of RM53 billion since 2016,” UOB Malaysia added.

“The Fed’s easing measures in recent weeks have also helped to stabilise liquidity conditions for emerging markets. As such, we do not expect intensified ringgit weakness to play out in the near term unless oil prices suffer another steep decline or CNY depreciates sharply due to economic weakness. USD/ringgit hovers at 4.34 at the time of writing,” it said.