Malaysia’s Overall Foreign Flows Improve In First Quarter

According a note released by UOB Global Economics and Markets Research, Malaysia’s overall foreign flows improved to RM3.8 billion in first quarter of the year compared to 4Q (Q1) RM2.8 billion in fourth quarter (Q4) of 2018 mainly lifted by bond inflows (+RM5.1 billion) which offset equity outflows (-MYR1.3 billion).

Meanwhile, foreign holdings of Malaysian government bonds (MGS & GII) stood at RM169 billion or 22.8 per cent of total outstanding as at end-March.

Some positive catalysts for emerging markets include the dovish shift from the Fed and more constructive talks between China and the US. However, Asia currencies continue to drift sideways against the US Dollar amid the bearish global outlook. Ringgit is holding in a tight range of 4.06-4.08 against the US Dollar as growth risks take centre stage.

The Asia Development Bank predicted that growth in Asia’s developing economies will fall to its slowest pace in nearly two decades and the World Trade Organisation cut its global trade projection for 2019 to the lowest level in three years. UOB keeps its view of 4.06 by mid-year and 4.11 by year-end amid sustained risk aversion.

Softer Foreign Flows in March

Foreign investors bought RM2.9 billion of Malaysian debt securities in March, as compared to RM4.5 billion in February. This marks the second month of net buying which brings cumulative flows to RM5.1 billion n in 1Q 2019. The latest quarterly inflow is a sharp
improvement from RM0.4 billion in 4Q 2018 and net selling of -MYR25.6 billion in 2Q-3Q 2018.

In March, foreigners bought Malaysian Government Securities (MGS) and Government Investment Issues (GII) of RM1.4 billion and  RM1.3 billion respectively compared to RM4.9 billion and RM0.8 billion respectively in February.

Foreign holdings of government bonds (MGS & GII) edged up to RM169 billion or 22.8 percent of total outstanding in March (RM167 billion or 22.7 percent in February). Foreigners also bought RM0.3 billion of Treasury bills in March and RM0.8 billion in February against marginal net selling of private debt securities last month.

Foreign funds continued to pare down their holdings of Malaysian equities by –MYR1.6 billion in March (RM0.8 billion in February). This brings cumulative net selling to –RM1.3 billion in 1Q 2019 and –RM15.2 billion since 2Q 2018.

Quarterly Flows Improve In 1Q 2019

Overall foreign flows improved to RM3.8 billion in 1Q 2019 as compared to RM2.8 billion in Q4 2018 mainly lifted by bond inflows (+RM5.1 billion) which offset equity outflows
(-RM1.3 billion). Alongside sustained merchandise trade surplus and foreign direct investment flows, Bank Negara Malaysia (BNM)’s foreign reserves rose USD1.6 billion quarter-on-quarter to USD103 billion as at end-March.

BNM’s March reserves position is sufficient to finance 7.5 months of retained imports and is 1.0 time total short-term external debt. BNM’s short position in Foreign Currency Exchange swaps narrowed further to USD18.4 billion in February compared to USD20.2 billion in January. This is equivalent to 17.9 percent of total foreign reserves in February (Jan: 19.7 percent), the lowest level since August 2018.

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