- Third consecutive month of lower foreign holdings in MGS. Foreign holdings of Malaysian Government Securities (MGS) continued to fall by RM1.5bil or 1.0% MoM, to RM145.3bil in November 2014. This compares to RM146.7bil in October 2014. Foreign holdings, as a percentage of total MGS outstanding, have thus lowered further to 44.5% in November 2014, from 45.9% in October 2014.

- The system loan-to-adjusted-deposit ratio (excluding foreign-held MGS) is estimated at 89.9%. Excluding foreign holdings in MGS, we estimate the industry’s gross loan-to-adjusted-deposit ratio to be at 89.9% in November 2014. This is an improvement from the similarly adjusted 90.2% in October 2014. The adjusted LDR has thus eased below 90% for the first time in three months.

- Excess liquidity had almost halved if excluding foreign holdings in MGS. Overall excess net deposit (total deposit less loans) had continued to improve on a month-on-month basis to RM293bil in November 2014, if compared to RM288bil in October 2014. If excluding foreign holdings of MGS, we estimate excess net deposit (gross deposit less loans less foreign holdings in MGS) to have improved as well to RM148bil in November 2014, from RM142bil in October 2014. Nevertheless, excess liquidity was still almost halved if we exclude foreign-held MGS from the deposit in the system.

- MGS yields stable in November but recorded upticks in the recent weeks in December. The 10-year MGS yield has been rising in recent weeks, to 4.148% in end-December, from 3.86% in end-November, and 3.84% in end-October 2014. The press reported that the increase in MGS yield was due to the impact of weakening oil prices, which affected the local currency and had possibly led to the foreign sell-off in the bond market.

- Maintain NEUTRAL. Based on the latest industry overall data, while there continued to be some outflow in November 2014, the yield was stable while liquidity had improved in November 2014. Nevertheless, December month’s data may provide a clearer picture of any further outflow. Maintain NEUTRAL on the sector. 

Source: AmeSecurities