Malaysia records biggest non-resident portfolio outflows since March 2020

The outflow of RM5.4b last month reverses the RM700m in May


MALAYSIA faced large foreign portfolio outflows of RM5.4 billion in June, making it the biggest non-resident portfolio outflows since March 2020.

UOB Global Economic and Market Research stated in a note today that the outflow reversed the RM700 million in May this year, triggered by outflows in both Malaysian debt securities (RM4.1billion) and equities (RM1.3billion) last month.

“This was in line with emerging markets’ (EMs) capital outflows that were weighed by lingering geopolitical risks, tighter global monetary conditions and surging inflation,” the report said.

Government Investment Issues (GII) and Malaysian Government Securities (MGS) recorded the heaviest foreign selling, taking foreign holdings of Malaysian government bonds down the most in 27 months by RM4.3 billion to RM229.7 billion as at end-Jun (end-May: +RM400 million to RM234 billion).

According to the report, it was the lowest outstanding amount since November 2021, equivalent to 23.4% of total government bonds outstanding (end-May: 24.2%), the smallest shareholding since September 2020.

For MGS alone, non-resident held an outstanding amount of RM188.9 billion or 36.5% of total MGS outstanding (end-May: RM189.8 billion or 37.4%), which was the lowest shareholding since May 2020.

Foreign holdings of GII reduced to a seven-month low of MYR40.8 billion or 9.2% of total GII outstanding, from RM44.2 billion or 10.1% as at end-May.

In the second quarter of 2022 (2Q22), foreign portfolio outflows totalled RM6.2 billion (1Q22: +RM9 billion), with debt outflows of RM5.8 billion (1Q22: +RM2.6 billion) and equity outflows of RM400 million (1Q22: +RM6.5 billion). MGS and GII were key culprits to overall debt outflows during the quarter.

Owing to that, Malaysia’s foreign portfolio inflows tapered off to RM2.9 billion in the first half of 2022, from RM20.3 billion inflows in the same period of last year.

“Recession and stagflation risks are now top concerns for investors, spurring risk aversion globally. This is brought by the ongoing geopolitical tensions, tighter monetary conditions, high inflation, China’s Covid control strategy, and ongoing supply chain disruptions which will continue to influence flows dynamics in EMs including Malaysia in the coming months,” the report added.

“Growing fears of rising US interest rates and a global recession may also send investors scurrying to the safety of the dollar and in turn further putting depreciation pressure on Asian currencies including ringgit in the near term.”