Investment Highlights

The international reserves of Bank Negara Malaysia (BNM) amounted to RM428.1bil (equivalent to USD134.8bil) as at 30 August 2013. The reserves position is sufficient to finance 9.3 months of retained imports and is 3.7 times the short-term external debt. (Source: Bank Negara Malaysia)

Comments

-  During the month of August, FOREX reserves at BNM fell by 2.2% MoM (or -USD3.0bil) in USD denomination. As of YTD, reserves had fallen by USD4.9bil (or -3.5%).

-  In Ringgit terms, reserves had fallen by 2.3% MoM (or -RM10.16bil) in August. Owing to the weaker Ringgit and forex translation gains, reserves grew by 0.2% YTD (or +RM1.02bil). As at last Friday’s close, Ringgit had depreciated by a cumulative 8.8% YTD to settle at RM3.3285 per USD.

-  Elsewhere, we note that liquidity surplus in the financial system has also been falling in the recent months. Excess liquidity dropped by approximately 2.8% MoM to RM285.7bil in July 2013.

-  Considering the prevailing uncertainties, we do expect continued outflows of funds which will remain a drag for the overall international reserves. In August, foreigners have been the net sellers of Malaysian equities for the third consecutive month. Net selling by foreigners rose to RM6.8bil in August from a net selling of RM0.3bil in July.

-  Foreign investors in emerging markets appear to be anticipating a tapering by the Fed soon. However, the recent subsidies reduction has probably been positive for the Malaysian market as the government stays committed to its fiscal consolidation plans.

-  Meanwhile, foreign holdings of Malaysian debt securities had declined further in the month of July. As at end-July, foreign holdings fell by 5.7% MoM to RM215.9bil (June: -4.6% MoM).

-  In particular, foreign holdings of MGS has been on a downward trend since registering close to RM145bil (or nearly half of the total outstanding) in April. Foreign holdings of MGS had reduced further to RM125.5bil by the end of July. Based on our estimate, foreign holdings accounts for 42.7% of total outstanding in July.

-  In terms of yields though, the spread between US Treasury and MGS of similar maturities has narrowed to about 1.0ppt based on Friday’s close, from as high as 1.75ppts on May 2. The yield for 10-year US Treasury bonds was 2.9342% on Friday compared with the 10-year MGS yield of 3.892%.

Source: AmeSecurities