Malaysia attracted an overall foreign portfolio inflows of RM4.6 billion in the third quarter (Q3), almost double the RM2.4 billion recorded in Q2 2020, despite moderating foreign flows into the country’s bond market and net selling of equities in September.
Bank Negara Malaysia’s (BNM) foreign reserves rose further by US$0.6 billion (RM2.5 billion) month-on-month to a 28-month high of US$105.0 billion as at end-September compared to US$104.4 billion as at end-August, UOB Global Economics and Markets Research said.
“The latest foreign reserves position is sufficient to finance 8.4 months of retained imports and is 1.1 times short-term external debt,” it said in a research note.
It said the divergence between debt and equity flows was expected to persist in the near term as uncertainties lingered amid rising of Covid-19 infections in Malaysia and globally.
“We expect a volatile period ahead of the United States (US) presidential elections while US-China tensions remain elevated; however, expectations of broad dollar weakness alongside a robust economic recovery in China should lift Asia foreign exchange including the ringgit over the next six to 12 months.
“We expect US dollar/ringgit to edge down to 4.05 by the first half of 2021,” it said.
It also said the non-resident investors remained net buyers of Malaysian debt securities albeit at a slower pace for the fifth month with bond flows rising RM0.5 billion to RM209.5 billion in September.
Foreigners remained net sellers of RM2.0 billion worth of Malaysian equities in September. As such, overall foreign portfolio flows fell RM1.4 billion.
For bonds, UOB said foreigners purchased mainly Malaysian Government Securities (MGS) amounting RM1.4 billion, which was offset by net selling of Government Investment Issues (GII) of RM0.4 billion, Malaysian Treasury Bills of RM0.4 billion as well as private debt securities including private sukuk of RM0.1 billion.
Foreign holdings of Malaysian government bonds rose by RM1.1 billion to RM189.4 billion in September compared to RM188.3 billion in the preceding month, which was equivalent to 23.1 per cent of total outstanding, it said.
For MGS alone, foreign holdings increased by RM1.4 billion to RM169.2 billion or 38.8 per cent of total MGS outstanding, while GII fell further to RM20.2 billion or 5.6 per cent of its total outstanding.
On a quarterly basis, UOB said overall foreign portfolio flows recorded a net inflow of RM4.6 billion in Q3 as debt inflows more than offset equity outflows.
“This compares to overall net inflows of RM2.4 billion in Q2 2020 and net outflows of RM24.5 billion in Q1 2020.
“Despite the pick-up in foreign inflows between June till August, it was not sufficient to offset the larger declines particularly in February to March, which leaves year-to-date foreign portfolio flows at RM17.5 billion from January to September,” it added.