- Foreign holdings in MGS stable in October 2015. As mentioned in our earlier report, the portion of foreign holdings of the Malaysian Government Securities (MGS) was relatively stable at RM153.9bil in October 2015, compared with RM153.8bil in September 2015. This follows three consecutive months of declines in the preceding months, and a recent peak of RM166.8bil in June 2015.

- Foreign holdings in MGS remained within the 46% range. In terms of percentage of total outstanding MGS, the foreign holdings level increased slightly to 46.3% in October 2015, from 45.6% in September 2015.

- The system loan-to-adjusted-deposit ratio (excluding foreign-held MGS) surpassed the 95% level. Excluding foreign holdings in MGS, we estimate the industry’s gross loan-to-adjusted-deposit ratio to have surpassed the 95% level, at 95.1% in October 2015, from 94.1% in September 2015.

- Liquidity lower in October 2015. Overall excess net deposit (total deposit less loans) was lower at RM227.3bil in October 2015, compared with RM242.8bil in September 2015.

- Adjusted liquidity contracted to a new low in October 2015. Excluding foreign holdings of MGS, we estimate excess net deposit (gross deposit less loans less foreign holdings in MGS) to have declined to a new recent low of RM73.4bil in October 2015, compared with RM89.0bil in September 2015 and RM75.7bil in August 2015.

- 10-year MGS yield stable in recent weeks. The longer-term 10-year MGS yield was relatively stable in recent weeks, at 4.244% towards the third week of November 2015, compared with 4.10% in end-October 2015. The most recent high recorded before this was 4.386% as at end-August 2015. 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 - 2 Dec 2015