-  Foreign holdings in MGS were stable on a MoM basis. Despite the volatility in capital markets, foreign holdings of MGS were stable and broadly unchanged at RM145.3bil in December 2014 (+RM0.05bil or +0.03% MoM), compared to RM145.3bil in November 2014. Foreign holdings as a percentage of total MGS outstanding were 44.1% in December 2014, which is marginally lower than 44.5% in November 2014.

-  The system loan-to-adjusted-deposit ratio (excluding foreign-held MGS) is estimated at 89.1%. Excluding foreign holdings in MGS, we estimate the industry’s gross loan-to-adjusted-deposit ratio to be at 89.1% in December 2014. This is a slight improvement from the similarly adjusted 89.9% level in November 2014.

-  Excess liquidity had almost halved if excluding foreign holdings in MGS. Overall excess net deposit (total deposit less loans) continued to improve on a MoM basis to RM309bil in December 2014, from RMRM293bil in November 2014. Excluding foreign holdings of MGS, we estimate excess net deposit (gross deposit less loans less foreign holdings in MGS) to have risen as well to RM164bil in December 2014, from RM148bil in November 2014. Nevertheless, excess liquidity had still almost halved if we exclude foreign-held MGS from the deposit in the system.

-  MGS yields recorded upticks in December. The 10-year MGS yield had risen 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, liquidity had improved in December 2014 while foreign holdings in MGS were stable. Maintain NEUTRAL on the sector.

Source: AmeSecurities