- Marginal retracement in foreign holdings in MGS in July 2015. Foreign holdings of MGS retraced marginally to RM165.4bil in July 2015, after rising significantly to RM166.8bil in June 2015. In terms of percentage of total outstanding MGS, the foreign holdings level had correspondingly come off to 47.8% in July 2015, compared to 48.5% in June 2015.

- The system loan-to-adjusted-deposit ratio (excluding foreign-held MGS) was significantly higher at 94.5%. Excluding foreign holdings in MGS, we estimate the industry’s gross loan-to-adjusted-deposit ratio to have tightened significantly to 94.5% in July 2015, from 91.5% in June 2015.

- Liquidity declined substantially in July 2015. Overall excess net deposit (total deposit less loans) had decreased substantially to RM247.3bil in July 2015, from RM296.3bil in June 2015. Excluding foreign holdings of MGS, we estimate excess net deposit (gross deposit less loans less foreign holdings in MGS) to be noticeably much lower at RM81.8bil in July 2015, against RM129.5bil in June 2015.

- MGS yields spiked in August 2015. The yield of the 10-year sovereign notes due September 2025 was reported to have spiked to 4.45% in the third week of August 2015, and was up 38bps for the month-to-date. The press reported that the Malaysian government bond curve has been under pressure due to a confluence of a sharp weakening of the ringgit, low oil prices and negative sentiment. 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 remain high. 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 Sep 2015