Foreign flows into Ringgit debts surged to RM5.2 billion in June despite continued forex weakness and hawkish repricing in US rates. According to Maybank Research (Maybank) in a recent report, this marked the sixth straight month of net gain, probably driven by attractive USD-hedged yields and index rebalancing flows.
“Cumulative inflows reached RM21.2 billion in the first half 2023, bringing total foreign holdings to a new high of RM267.9 billion. Foreign share of Malaysia Government Securities (MGS) + Government Investment Issues (GII) rose to 23.4%,” said Maybank.
Indonesia also saw a larger inflow of USD1.2 billion in June amid conducive global risk sentiment. Foreign inflows accelerated to RM5.2 billion in June, probably driven by attractive USD-hedged yields and index rebalancing flows.
Net gains have now extended to six consecutive months, the longest streak since May 2021 when continuous inflows lasted for slightly over a year. Foreign holdings reached a new record of RM267.9 billion at end-June versus the previous high of RM263.2 billion in Feb 2022. Cumulative inflows have now totaled RM21.2 billion in the first half 2023.
“By debt instrument, GII and MGS were the primary drivers with inflows of RM3.6 billion and RM1.6 billion respectively. PDS saw a small RM0.2 billion gain while discount instruments reported RM0.2 billion outflow,” said Maybank.
The foreign share of MGS dipped to 35.9% on an enlarged outstanding base, while that of MGS+GII was up slightly at 23.4%.
Global risk sentiment was conducive in June with higher DM equity prices and tighter credit spreads as the Fed paused rate hike for the first time in 11 meetings. Indonesia was also a major beneficiary receiving a larger inflow of USD1.2 billion in the month.
A caution worth mentioning is that based on data available as of quarter one 2023, offshore banks accounted for more than RM11 billion/78% of the inflows and the stickiness of their holdings can be less sticky.
Total portfolio flows, including bonds and equities, gained a net RM3.9 billion in June, predominantly contributed by debt inflows as domestic equities incurred outflows for a tenth consecutive month and by a larger RM1.3 billion.
Malaysia foreign reserves dropped USD1.3 billion to USD 111.4billion at end-June, the third straight month of decline. The Ringgit weakened further by 1.2% in June to 4.667 though at a slower pace than -3.4% in May and showed tentative signs of stability since the final week of June.
