- Significant increase in foreign holdings in MGS in June 2015. Foreign holdings of MGS rose significantly to RM166.8bil in June 2015, from RM158.2bil in May 2015. In terms of percentage of total outstanding MGS, the foreign holdings level had increased further to 48.5% in June 2015, from 46.9% in May 2015.

- The system loan-to-adjusted-deposit ratio (excluding foreign-held MGS) is estimated to be higher at 90.5%. Excluding foreign holdings in MGS, we estimate the industry’s gross loan-to-adjusted-deposit ratio to have tightened further to 91.5% in June 2015, from 90.4% in May 2015.

- Liquidity declined further in June 2015. Overall excess net deposit (total deposit less loans) had decreased to RM296.3bil in June 2015, compared to RM304.3bil in May 2015. Excluding foreign holdings of MGS, we estimate excess net deposit (gross deposit less loans less foreign holdings in MGS) to be noticeably lower at RM129.5bil in June 2015, against RM146.2bil in May 2015.

- MGS yields remained stable in June 2015. The 10-year MGS yield had eased marginally to 3.942% in the third week of July 2015, compared to 4.009% as at end-June 2015. 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% as at end-December 2014, which was attributed to the 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 continued to rise. Liquidity continued to retrace between April 2015 and June 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 - 3 Aug 2015