Foreign Flow To Ringgit Bonds Slowed To RM1.5 Billion In April, Driven By Debt, Discount Instrument

Foreign flows into Ringgit bonds slowed to plus RM1.5b in April. The gain was driven by T-bills as inflows to Malaysian Government Securities+Government Investment Issues grinded to a halt. USD-hedged MGS yields remain attractive to foreign investors.

“Following year-to-date rise of RM12.9 billion, we would caution against additional large inflows given fast-changing market sentiment, although the foreign shares are not heavy at 35.9% (MGS) and 23% (MGS+GII). In ASEAN, Indonesia had a smaller USD0.3 billion net gain while Thailand saw net outflow,” said Maybank Research Pte Ltd (Maybank) in a recent report.

Foreign flows into Ringgit bonds slowed to plus RM1.5 billion in April from the strong plus RM6.6 billion in March. UST volatility eased and US rates pricing moved sideways. The foreign holdings of MGS+GII was unchanged at RM240.5 billion.

Nonetheless, year-to-date inflows remain sizeable with cumulative inflows for all Ringgit debts totaling plus RM12.9 billion in the four months of 2023 and total foreign holdings rose to RM259.7 billion at end-April.

By debt instrument, the inflows were primarily driven by GII and discount instruments, offset by an outflow of minus RM1.7 billion from MGS which could be due to the RM8.9 billion MGS maturities on 20 Apr not being fully reinvested.

Private debt securities (PDS) had a small USD0.1 billion contribution. Foreign shares of MGS and MGS+GII were marginally lower at 35.9% and 23% respectively.

“Overall, ASEAN local bonds held up well against the UST volatility, although it is likely hard to sustain the strong inflow momentum in the absence of a new catalyst and we would caution against fast buildup of foreign positions as changing market sentiment could mean reversal risk in future,” said Maybank.

The slowdown in foreign flows was similarly seen in other ASEAN government bond markets, with Indonesia having a smaller net gain of USD0.3 billion while Thailand saw net outflows based on higher frequency data from ThaiBMA.

Total portfolio flows including bonds and equities received a net gain of plus RM1.2 billion in April, predominantly contributed by debt inflows as domestic equities continued to incur outflows for an eight straight month, albeit narrower at minus RM0.3 billion.

Despite the portfolio inflow, Malaysia’s foreign reserves dipped USD1.1 billion month-on-month to USD114.4 billion at end-April. The Ringgit weakened a tad against the USD by 1.1% in April to 4.462. Meanwhile, BNM’s forex forward position, which is released with a one-month lag, narrowed for a second month to USD25.7 billion in March.

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