MARC: Foreign funds lowered MGS holdings in April


Investors sold off Malaysian Government Securities (MGS) in April, driven by concerns that Norway’s US$1 trillion (RM4.17 trillion) sovereign wealth fund (SWF) may scale down holdings in emerging markets (EMs) and the FTSE World Government Bond Index (WGBI) may remove Malaysian debt from its index.

Malaysian Rating Corp Bhd (MARC) noted that foreign investors reduced their holdings of local debt by RM9.8 billion to RM180.1 billion in April.

“It was the lowest level of foreign holdings in local bonds since March 2017. By end-April, foreign share of local bonds fell to 12.5%, against March’s total outstanding of 13.1%.

“MGS and Government Investment Issues contributed most of the outflows, followed by corporate bonds and Treasury bills, which recorded net outflows of RM7.1 billion in April.

“Year-to-date, the local bond market recorded a total net outflow of RM4.7 billion,” the rating agency noted in a release yesterday.

With the world’s largest SWF, Norway’s US$1 trillion is set to slash its EM bond holdings.

Meanwhile, the FTSE Russell had placed Malaysia on its watchlist to review Malaysia’s government bond participation in the WGBI.

MARC stated that some of the losses in MGS were mitigated during the final week of the month.

“Bank Negara Malaysia and the Securities Commission Malaysia pledged to deepen Malaysia’s onshore markets, and also reassured and praised the resiliency of local financial markets, putting a breather on MGS.

“In the same period, MGS also gained support from the weaker than expected rise in the March Consumer Price Index. By end-April, yields on MGS were lower by three basis points (bps) to 6bps with the 10-year note settling at 3.79%,” it said.

In the corporate bonds space, issuances have slowed down month-on month in April to RM11.1 billion from RM11.3 billion in March.

The decline was driven by the weaker volume of unrated corporate debt which declined to RM1.1 billion from RM1.6 billion in March.

Quasi-government issuers recorded higher volume at RM7.1 billion against RM5.1 billion previously, led by large issuances from DanaInfra Nasional Bhd and Lembaga Pembiayaan Perumahan Sektor Awam, it stated.