by SHAZNI ONG / pic by TMR FILE
MALAYSIA attracted an overall foreign portfolio inflows of RM4.6 billion in the third quarter of the year (3Q20) — almost double the RM2.4 billion recorded in 2Q20, despite moderating foreign flows into the country’s bond market and net selling of equities in September.
United Overseas Bank (M) Bhd senior economist Julia Goh (picture) said the divergence between debt and equity flows is expected to persist in the near term as uncertainties linger amid rising Covid-19 infections globally and in Malaysia, as the firm expects, a volatile period ahead of the US presidential elections, while the US-China tensions remain elevated.
“Expectations of broad dollar weakness, alongside a robust economic recovery in China, should lift Asian foreign exchange (forex), including the ringgit, over the next six to 12 months.
“We expect the US dollar/ringgit to edge down to 4.05 by the first half of next year. Among key to watch are the country’s fiscal stance, deficit and public debt projections for 2021 in its upcoming budget announcement on Nov 6,” she said in a note yesterday.
Goh added that the higher inflow also indicates positive appetite for Malaysian debt securities.
Non-resident investors remained net buyers of Malaysian debt securities albeit at a slower pace for the fifth month.
Bond flows rose RM500 million to RM209.5 billion in September (August: up RM3 billion to RM209 billion).
Foreigners remained the net sellers of RM2 billion worth of Malaysian equities in September (August: -RM1.5 billion). As such, overall foreign portfolio flows fell RM1.4 billion in September (August: RM1.5 billion), she said.
For bonds, Goh said foreigners purchased mainly Malaysian Government Securities (MGS) totalling RM1.4 billion last month (August: RM3.2 billion).
“This was offset by net selling of Government Investment Issues (GII) of RM400 million (August: -RM200 million), Malaysian Treasury Bills RM400 million (August: -RM5 million) and, private debt securities including private sukuk of RM100 million (August: -RM80 million),” she said.
Meanwhile, foreign holdings of Malaysian government bonds (MGS & GII) rose by RM1.1 billion
to RM189.4 billion (August: +RM3.1 billion to RM188.3 billion), which is equivalent to 23.1% of the total outstanding (August: 23.3%).
For MGS alone, foreign holdings increased by RM1.4 billion to RM169.2 billion or 38.8% of total MGS outstanding (August: 39.2%), while GII fell further to RM20.2 billion or 5.6% of total GII outstanding (August: 5.8%).
Goh also noted that Bank Negara Malaysia’s (BNM) foreign reserves increased by US$600 million (RM2.49 billion) month-on-month or US$1.4 billion year-to-date to a 28-month high of US$105 billion as at end-September from US$104.4 billion as at end-August.
This, Goh said, was mainly lifted by a continued debt inflow and foreign direct investment.
“The latest foreign reserves position is sufficient to finance 8.4 months of retained imports and is 1.1 times short-term external debt.
“While BNM has yet to publish September 2020 forex swaps data, the central bank’s net short position in forex swaps narrowed for a fifth month and was lower by US$300 million to US$8.4 billion as at end-August (end-July: down US$1.3 billion to US$8.7 billion), which is equivalent to 8% of total foreign reserves (July: 8.3%),” she said.