Strong foreign portfolio inflows in May, but path ahead remains bumpy

MALAYSIA recorded a robust rebound in foreign portfolio inflows but the path ahead for capital flows was expected to remain bumpy.

In May, Malaysia recorded foreign portfolio inflows to RM7.0 billion, from an outflow of RM0.8 billion in April, marking the largest inflows since July 2023, driven by a strong turnaround in both equity and debt securities flows, according to a UOB Group report released yesterday (July 11).

It helped to turn the cumulative foreign portfolio (equities and bonds) flows into black for the first time this year, at RM0.7 billion in Jan-May.

“Going forward, we continue to expect a bumpy path for capital flows into the emerging markets including Malaysia. This is premised on the uncertain start to the US Fed’s rate cut cycle, lingering geopolitical risks, increasing trade protectionisms and rising concerns about domestic policy reform,” it said.

The report said May’s non-resident debt inflows were propelled by almost all instruments, except for private sukuk, with the Malaysian Government Securities (MGS) drawing the highest inflows, which was triple the amount recorded in the preceding month (May: +RM3.3 billion, April: +RM1.1 billion), followed by Government Investment Issues (GII, May: +RM1.0 billion, April: +RM0.05 billion).

The report also said that the Ringgit would remain subject to volatility despite the ongoing coordinated measures conducted by the authorities.

It noted that Bank Negara Malaysia (BNM) estimated that there was US$6-7 billion of potential annual income to be converted to help offset (any) negative outflows and to be an active stabilizer for the Malaysian currency.

“A stronger correlation to the CNY would also turn into a tailwind for the MYR as the CNY is widely expected to rebound in 2H24. Hence, we project USD/MYR to recover at a measured pace to 4.65 in 3Q24 and 4.60 in 4Q24, from June 10’s closing of 4.7230,” it said. – TMR