In the first week of October, outflows in the local bond of RM4.8 billion were recorded due to reduced probability of a further 50bps rate cut by the US Federal Reserve (Fed) following a stronger-than-expected September jobs report, according to Kenanga Investment Bank Bhd (Kenanga Research).
Last Friday, US announced strong labour data, which alleviated some recession concerns. According to the US labour department, the addition of 254,000 non-farm payrolls in September, surpassed expectation of 140,000, with August’s figures also revised upward to 159,000. The unemployment rate decreased unexpectedly to 4.1% from 4.2%.
In September, foreign investors continued its buying spree of domestic bonds for the third straight month, but the net inflows shrank to RM1.0 billion from RM9.0 billion recorded in August, likely due to profit taking as the Malaysian ringgit appreciated to around RM4.10 per US dollar in September, the strongest since early this year where it had exchanged around RM4.70-4.80.
Last month, the local capital market also saw a sizable decrease of net foreign inflows resulting in the month-end total of just RM1.6 billion, down from RM11.5 billion in August.
Kenanga Research reported that inflows were driven by strong demand for Malaysian Islamic Treasury Bills (MITB) and Malaysia Treasury Bills (MTB) but net selling of Malaysian Government Securities (MGS) partially offset these gains.
Net inflows to MITB in September increased substantially to RM1.4 billion from RM700 million in August as the total foreign holdings share rose to 31.9% from 20.6% in August.
Net inflows to MTB, on the other hand, increased to RM700 million from RM600 million in August as the total foreign holdings share rose to 33.4% from 22.4% in August.
MGS recorded net outflows of RM700 million in September, compared to net inflows of RM6.2 billion registered in August. MGS reverted to outflows last month after two months of substantial inflows.
Total foreign debt holdings increased to RM289.1 billion in September while the foreign share of total outstanding remained unchanged at 13.9%, same rate as in August.
Despite these challenges, Malaysian bonds remain attractive due to the still favourable yield differentials, as the Fed’s monetary easing has added to the local bonds’ appeal. Additionally, a stable overnight policy rate, a steady sovereign credit rating, strong GDP growth, stable inflation, and a resilient labour market all provide a supportive economic environment.
In addition, Malaysia’s potential inclusion into BRICS, an intergovernmental organisation comprising Brazil, Russia, India, China and other affiliated member states, could also attract investors seeking diversification and growth.
