Financial market sees positive effect of BNM’s development measures

By Ng Min Shen

The Malaysian financial market has shown enhanced activities following the second series of financial market development measures introduced to expand and deepen onshore financial markets in the country.

Subsequent to the first set of measures rolled out in December 2016, Bank Negara Malaysia (BNM) announced in April this year another set of measures to promote a fair and effective financial market, improve bond market liquidity, provide foreign exchange (forex) flexibility and strengthen the infrastructure of the financial market.

The Financial Markets Committee (FMC), established by BNM in May 2016, said greater interest in emerging-market financial assets globally has also resulted in an increase of non-resident investments into the domestic bond and equity markets.

It noted in a statement yesterday the ringgit strengthened 1.4% in May and traded within the range of 4.26 and 4.35 against the greenback to close at 4.28 as at end-May 2017.

“The onshore forex market sustained a daily average volume of US$9.4 billion (RM40.16 billion), of which trading volume for ringgit currency pairs recorded a daily average of US$5.2 billion for May. Of this, the spot and forward transactions recorded an average of US$2.4 billion daily,” the FMC said.

For the month of April, the daily average volume stood at US$9.9 billion for the onshore forex market and US$6.2 billion for ringgit currency pairs.

The FMC said the exchange rate remained stable with the US dollar versus ringgit one-month implied volatility at an average of 5% this year.

Average intraday movement recorded a daily average of 89 points, while the bid-ask spread recorded an average of 26.4 basis points since end-April 2017.

The Malaysian bond market conti- nued to attract interest, with participation from diverse types of investors recorded during the last three primary auctions of government bonds.

“The recent Malaysian Government Securities (MGS) auction recorded a healthy bid-to-cover ratio of 3.3 times. The average daily trading volume in the secondary bond market recorded a level of RM3.6 billion in May from RM3.7 billion in April,” the FMC said.

MGS short-selling volume increased to RM1.1 billion in May from a monthly average of RM872 million prior to the announcement.

Non-resident holdings of government bonds increased by RM9 billion, with over 70% into medium-to longer-term papers, accounting for 26.3% of the total outstanding as at end-May 2017.

The months of April and May also saw non-residents registering inflows of RM15 billion into the government bond market.

“This is in contrast with outflows observed between January and March, which recorded total government bond divestments of RM34.3 billion, of which 95% comprised short-term papers,” the FMC said.

For the trade sector, data continued to indicate a more balanced forex flow between exports and imports, with net forex conversion for the month of May at US$1.1 billion.

A total of US$135 billion of forex transactions in relation to exports and imports of goods was recorded for the current year-to-date.

With additional flexibility accorded to fund managers recently, an additional 10 fund managers registered in May, bringing the total number of registered fund managers to 44, with RM102.9 billion of eligible assets under management under the dynamic hedging framework.

In 2017, six additional non-resident banks attested against offering, or trading of ringgit non-deliverable forward in the offshore market with 22 institutions attested since November 2016.

“The central bank will continue to seek wider compliance to the non-facilitation rule from offshore financial market players,” the FMC said.

It added it will continue to engage all stakeholders together with the central bank, to ensure the successful implementation of initiatives introduced.

Meanwhile, the focus would remain on creating a conducive and orderly financial market environment to facilitate business for the benefit of the domestic economy, it said.

The FMC, chaired by BNM assistant governor Adnan Zaylani, comprises representatives from BNM, financial institutions, corporations, financial service providers and other institutions which have prominent roles or participation in the financial markets.

The objective of the committee is to broaden industry engagement with a focus on reviewing and formulating comprehensive strategies for the wholesale financial markets to meet the diverse and complex demands of a more developed and internationally integrated economy.