- Further rise in foreign holdings in MGS in May 2015. Foreign holdings of MGS continued to rise to RM158.2bil in May 2015 from RM157.6bil in April 2015. In terms of percentage of total outstanding MGS, the foreign holdings level was sustained at 46.9% in May 2015, compared to 47.0% in April 2015.

- The system loan-to-adjusted-deposit ratio (excluding foreign-held MGS) rose to 90.4%. Excluding foreign holdings in MGS, we estimate the industry’s gross loan-to-adjusted-deposit ratio to have increased to 90.4% in May 2015, from April 2015’s 88.9%. This is following a brief respite in March, when the adjusted LDR eased to 88.9% in March 2015, from February 2015’s 89.7%.

- Liquidity decreased further in May 2015. Overall excess net deposit (total deposit less loans) has now decreased to RM304.3bil in May 2015, compared to RM315.9bil in April 2015. Excluding foreign holdings of MGS, we estimate excess net deposit (gross deposit less loans less foreign holdings in MGS) to have declined to RM146.2bil in May 2015, against RM158.3bil in April 2015.

- MGS yields remained stable in May and June 2015. The 10-year MGS yield was relatively stable, having inched up to 4.13% in mid-June 2015 before falling back to 4.02% currently. Therefore, there was not much change from the 3.91% level in end-May 2015 and 3.852% in end-April 2015. The most recent high recorded before this was 4.148% in end-December 2014, which was attributed to volatility in oil price. The 10-year MGS yield was about 3.50% two years ago.

- Maintain NEUTRAL. Based on the latest industry overall data, foreign holdings in MGS has continued to rise. Liquidity has retraced in May and April 2015, following a brief improvement in March 2015. We maintain our stance of a likely less ample domestic liquidity situation ahead given the still historically high foreign holdings of MGS. Maintain NEUTRAL on the sector.

Source: AmeSecurities Research - 1 Jul 2015