- Larger pace of MoM decline in foreign holdings in MGS in August 2015. Foreign holdings of the Malaysian Government Securities (MGS) fell by a larger pace at -4.8% MoM to RM157.4bil in August 2015, from RM165.4bil in July 2015 and from an earlier recent peak of RM166.8bil in June 2015. In terms of percentage of total outstanding MGS, the foreign holdings level declined to 46.0% in August 2015, from 47.8% in July 2015 and 48.5% in June 2015.

- The system loan-to-adjusted-deposit ratio (excluding foreign-held MGS) rose further to 94.9%. Excluding foreign holdings in MGS, we estimate the industry’s gross loan-to-adjusted-deposit ratio to have risen further to 94.9% in August 2015, from 94.5% in July 2015.

- Liquidity declined further in August 2015. Overall excess net deposit (total deposit less loans) declined further to RM233.1bil in August 2015, from RM247.3bil in July 2015. Excluding foreign holdings of MGS, we estimate excess net deposit (gross deposit less loans less foreign holdings in MGS) to have shrunk further to RM75.7bil in August 2015, compared with RM81.8bil in July 2015.

- MGS yields spiked in August 2015. The yield of the 10-year MGS spiked upwards to 4.35% as at end-August 2015, from 3.98% at end-July 2015. The press earlier reported that the Malaysian government bond curve had 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 at 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 Oct 2015