- Foreign shareholdings of MGS continued to rise in March 2014, the fifth consecutive month of increase. Foreign holdings of MGS continued to rise by RM1.4bil or 1.0% MoM to RM140.8bil in March 2014. This marks the fifth consecutive month of MoM increase since November 2013’s RM136bil level.

- Foreign holdings level in outstanding MGS, as a percentage of total MGS, was 44.1% in March 2014. In terms of percentage of total outstanding MGS, foreign holdings level declined to 44.1% in March 2014, from 44.7% in February 2014. The decline in foreign shareholding was due mainly to a faster expansion in total outstanding MGS base.

- Excluding foreign holdings of MGS, the system loan-to-adjusted-deposit ratio is estimated at 89.5%. If excluding the foreign holdings in MGS, we estimate the industry’s gross loan-to-adjusted-deposit ratio to be at 89.5% in March 2014, a step back from the previous high of 90.0% in February 2014. The official industry’s loan-to-deposit ratio (LDR) is now at 85.1% in March 2014, easing back from 85.7% (revised from 85.5% previously) in February 2014. The March 2014’s official industry LDR data marked the third consecutive month of LDR remaining above 85%; it is still at the highest in more than ten years since January 2004’s 85.9%.

- Excess liquidity has somewhat improved. Overall excess net deposit (total deposit less loans) improved to RM287bil in March 2014, from RM278bil in February 2014. Excluding foreign holdings of MGS, we estimate excess net deposit (gross deposit less loans less foreign holdings in MGS) to have increased as well to RM157bil in March 2014, from RM145bil in February 2014.

- MGS yields remain relatively high. MGS yields are relatively unchanged after reaching the recent peak in end-January 2014. The 10-year MGS yield was stable at 4.11% in end-March, which is relatively unchanged from end-February’s 4.11%, and still lower than the recent high of 4.3% at end-January 2014. The level remains elevated when compared to 4.09% in early August, when there were larger outflows due to foreign selling of MGS.

- Maintain NEUTRAL. Based on latest industry overall data, we are maintaining our stance of a likely less ample domestic liquidity situation ahead given the high foreign holdings of MGS. Maintain NEUTRAL on the sector. 

Source: AmeSecurities