Foreign investors remained net sellers of Malaysia’s debt securities for the third straight month in November(-RM1.0b;
Oct: -RM6.3b), albeit to a lesser extent − Total foreign debt holdings fell to RM247.6b (Oct: RM248.7b), as its share of total outstanding debt edged lower (13.3%; Oct: 13.4%).
Kenanga notes that the foreign selling of Malaysian bonds eased in November, as demand picked up towards the end of the month following the formation of the unity government, and due to the return of global risk-on sentiment with markets pricing in a less hawkish US Fed. This came off the back of potentially strong foreign selling earlier in the month ahead of the 15th General Election and amid the brief hung parliament period.
The smaller outflow was driven by a larger sell-off of Malaysian Treasury Bills, which outweighed a rebound in holdings of Government Investment Issues and a softer outflow of Malaysian Government Securities.
− MITB (-RM1.0b; Oct: -RM0.2b): foreign holdings share fell to an 11-month low (45.0%; Oct: 51.1%).
− GII (RM1.3b; Oct: -RM1.2b): foreign holdings share rose to 8.5% (Oct: 8.3%).
− MGS (-RM0.1b; Oct: -RM2.7b): foreign holdings share edged lower (34.4%; Oct: 34.8%).
For the equity market, foreign investors remained net sellers for the third consecutive month
− Foreign outflows edged lower (-RM0.3b; Oct: -RM0.6b), amid the easing of domestic political uncertainty.
Overall, the capital market recorded its smallest net outflow in three months (-RM1.3b; Oct: -RM6.9b). The debt market may see a modest return of foreign inflows in December
The 10-year US Treasury average yield fell by 16 bps to 3.87% in November, whilst the 10-year MGS average yield dropped 13 bps to 4.30%, widening the average yield spread for the first time in five months (43 bps; Oct: 39 bps). Kenanga notes the debt market may record a slight net inflow in December, supported by the return of political stability and the appointment of the new Prime Minister. Furthermore, foreign demand may be buoyed by easing global risk aversion following relatively dovish comments from the Fed and signs that US inflation is cooling.
However, the risk of outflows remains, amid a widening rate gap between BNM and the Fed, with the US central bank widely expected to raise rates by another 50 bps at its upcoming meeting. Hence, the house expects a more sustained return of foreign inflows from 2Q23 onwards, when most major central banks will likely complete their tightening cycles.
Kenanga expects BNM to raise the overnight policy rate by another 25 bps at its next meeting, given strong growth momentum and persistently elevated core inflation. However, due to growing global economic uncertainty and a potential
domestic slowdown later in the year, the house currently assigns only a 50.0% probability for another 25 bps hike in March.
