Malaysia: Higher bond inflows in March

Foreign Buying of Domestic Bonds Rise Further In March

Malaysia recorded higher foreign portfolio inflows of RM5.8 billion in March (February: +RM6.3 billion). Foreign flows were concentrated in domestic bonds (March: +RM5.9 billion, February: RM7.2 billion) while net selling in local equities narrowed (March: -RM0.1 billion, February: -RM0.9 billion).

In 1Q21, cumulative foreign inflows totalled RM14.9 billion mainly into bonds (+RM16.7 billion) while equities (-RM1.8 billion) continued to see net selling albeit narrower compared to the previous quarter. The bond inflows were resilient compared to sharper selloffs of emerging market debt in March amid steepening yield curves.

Breakdown of foreign flows by type of bonds are as follows:

Net purchases of Malaysian Government Securities (MGS) – (March: RM1.5 billion, February: RM3.5 billion, January: RM2.3 billion)
Net purchases of Government Investment Issues (GII) – (March: RM2.9 billion, February: RM2.1 billion, January: RM0.9 billion)
Net purchases of Malaysian Treasury Bills (MTB) – (March: RM1.8 billion, February: RM1.2 billion, January: RM0.4 billion)
Net purchases of Private Debt Securities (PDS) including private sukuk – (March: RM0.6 billion, February: RM0.3 billion, January: RM0.2 billion)
Net selling of BNM notes – (March: -RM1.0 billion, February: unchanged, March: unchanged)

Foreign holdings of Malaysian government bonds (MGS & GII) rose by RM4.4 billion (February: +RM5.6 billion) to RM215 billion (or 25% of total outstanding) in March, marking the highest share since April 2018. For MGS, foreign investor holdings rose RM1.5 billion to RM184.6 billion, which is equivalent to 40.8% of total MGS outstanding. For GII, foreign investors held RM30.7 billion, which is equivalent to 8.0% of the total GII outstanding in March.

Foreign investors continued to pare down their holdings of Malaysian equities albeit lesser by RM0.1 billion in March (February: -RM0.9 billion, January: -RM0.8 billion). In 1Q21, foreigners sold a cumulative RM1.8 billion of local equities (4Q20: -RM2.3 billion). This marks 21 months of continued selling with a cumulative reduction of RM33 billion since July 2019. Foreign ownership of Malaysian equities scaled down to a new low of 20.3% of total market capitalisation in March (February: 20.4%, 2019: 23.1%).

Foreign Reserves Still High At USD108.6 billion

Bank Negara Malaysia’s foreign reserves edged down by USD0.4 billion m/m to USD108.6 billion as of end-March (February: +USD0.3 billion m/m to USD109 billion). However, foreign reserves were still higher by USD1.0 billion year-to-date compared to USD107.6 billion at the end of 2020, supported by sustained foreign portfolio inflows into bond markets and strong current account surplus.

The latest reserves position is sufficient to finance 8.8 months of retained imports and is 1.2 times total short-term external debt. While BNM has yet to publish its March FX swaps data, the central bank’s net short position in FX swaps widened further by USD1.2 billion m/m to USD7.8 billion or 7.1% of total foreign reserves as of end-February.