Foreign inflows into domestic bonds outpace equity outflows

by LYDIA NATHAN / pic by ARIF KARTONO

MALAYSIA’S overall foreign portfolio inflows stood at RM5.3 billion in April, with bulk of the money invested mainly in domestic bonds standing at RM6.4 billion against net selling of local equities at RM1.1 billion.

United Overseas Bank (M) Bhd (UOB Malaysia) in a report yesterday, noted that the strength in foreign flows was a result of FTSE Russell’s decision to remove Malaysia from the Watch List and retain the country in its World Government Bond Index.

“Domestic bond yields have retreated from the highs in March alongside the US Treasury yields. Risk-off sentiment was also reinforced by the latest resurgence in Covid-19 infections, tighter containment measures and Bank Negara Malaysia’s (BNM) neutral monetary policy stance,” it stated.

UOB Malaysia economists Julia Goh and Loke Siew Ting said this followed a recovery in portfolio flows into emerging markets (EMs) in April supported by higher debt flows amid higher EM bond yields and real rates, while inflation may prove transitory.

Over a year-to-date (YTD) period, cumulative foreign inflows into Malaysia’s bonds and equities amounted to RM20.3 billion with flows concentrated in bonds worth RM23.1 billion against foreign net equity outflows of RM2.8 billion.

“Foreign investors sold more Malaysian equities with a net selling of RM1.1 billion in April, while the YTD cumulative foreign net selling of equities stood at RM2.8 billion for January to April 2021. Foreign ownership of Malaysian equities held at 20.3% of the total market capitalisation in April,” the economists stated.

BNM’s foreign reserves increased by RM9.04 billion to RM455.2 billion as at the end of April.

Foreign reserves increased by RM13.15 billion YTD from RM442.07 billion as at the end of 2020 amid a sustained current account surplus in the first quarter of this year and higher foreign flows into bond markets.

The latest reserves position is sufficient to finance 8.7 months of retained imports and is 1.3 times total short-term external debt, the report read.