• Foreign holdings of MYR debts securities declined to RM256.9bn in April

• Foreigners sold RM2.1bn of MGS and RM0.5bn of GII

• Total portfolio outflow of RM1.3bn for equities and debt securities combined

• Foreign demand for local bonds will likely remain pressured

Malaysia saw a second month of foreign portfolio outflows in April as a consequence of increased volatility in the global financial markets. Foreign investors pulled out RM2.1bn from Malaysian capital, bringing the accumulated total foreign holdings of Malaysia debt securities to RM256.9bn at end-April.

Looking into details, foreign investors pared down their holdings of MGS by RM2.1bn (Mar: -RM3.2bn; Feb: +RM0.5bn; Jan: +RM4.6bn) to RM189.3bn or 37.6% of total MGS outstanding. Overseas investors also sold their holdings of GII by RM0.5bn (Mar: -RM1.0bn; Feb: +RM1.7bn; Jan: -RM0.3bn) to RM44.4bn or 10.3% of total GII outstanding as at end-Apr. This resulted in foreign holdings of Malaysian government bonds (MGS & GII) to decline by RM2.6bn to RM233.7bn as at end-Apr, which was equivalent to 25.0% of total outstanding. Foreign holdings of PDS declined to RM13.4bn as RM0.5bn was sold for the month. Meanwhile, foreign holdings of discount instruments increased by RM1.0bn for the month as foreign investors bought Malaysian Islamic Treasury Bills (+RM0.8bn). As a result, in combined amounts (inclusive of short-term bills/notes and corporate bonds/sukuk), foreign holding levels in April 2022 were lower by RM2.1bn, bringing total foreign ownership of MYR bonds to RM256.9bn or 14.5%.

As at end-Apr 2022, foreign investors sold RM2.1bn of Malaysian bonds (Mar: - RM4.1bn; Feb: +RM3.1bn; Jan: +RM3.5bn). Meanwhile, foreign equity investors, who have been net sellers over the past 4 years, continued to remain net Malaysian buyers last month at RM826m (Mar: +RM3.3bn; Feb: +RM2.8bn; Jan: +RM0.3bn). Domestic institutions remained net sellers in April at RM1.0bn whilst domestic retail investors bought RM0.2bn. As a result, Malaysia recorded overall foreign portfolio outflow of RM1.3bn in April 2022 (Mar: -RM0.8bn; Feb: +RM5.9bn; Jan’22: +RM3.8bn). Year to date, foreign portfolio inflows amounted to RM7.6bn as foreign investors have been net buyers of both bonds and equity at RM0.4bn and RM7.2bn, respectively.

Bank Negara Malaysia’s international reserves declined for the fourth consecutive month, falling by USD3.1b or -2.7% mom to USD112.5bn as of end-April. In ringgit terms, the value of BNM reserves registered the largest decline in 52 months, falling by RM13.2bn to RM472.6bn. The latest reserves position is sufficient to finance 5.9 months of imports of goods and services (previously retained imports) and is 1.2 times total short-term external debt.

Global bonds extended selloff before the FOMC meeting. Yields reached key thresholds: 10y UST, UK Gilt and German Bund yields crossed 3.00%, 2.00% and 1.00% respectively, then retraced slightly lower. The Fed was widely expected to hike rate by 50bps on 4 May, and announce the balance sheet reduction plan. US Treasuries rally stalled as investors turned their attention back to bond supply and inflation. Overall, UST gained in the final week as investors rushed to perceived safe assets amid the renewed fear of a global growth crunch triggered by Beijing’s Covid outbreak. The overall benchmark yields ticked lower amid the robust demand for UST and USD. The 2Y yield closed at 2.69%, and the 10Y yield ended the month at 2.93%. The extended climb in yields cemented the view that the 10Y UST yield may soon reach 3.0% as the Fed begins to unwind its balance sheet and hike the fed funds. Elevated inflation and a looming global growth crunch resulting from China’s Covid situation amid tighter monetary policy continue to shape the narratives for the global economic outlook and the direction of the bond market.

In the local bond space, trading activities were lukewarm and sentiment continued to be cautious. In the final week of the month local govvies weakened alongside the extended selloff in the ringgit as investors dumped risk assets in favour of safe havens. The overall benchmark MGS/GII yields advanced, shifting the curves higher across. The benchmark 5Y MGS closed at 3.91% while the 10Y

MGS yields shot up to end the month at 4.38%. Bond sentiment remained bearish, but new supply was well absorbed as yields are trading near the highest levels since the global financial crisis.

Four auctions conducted in April:

I. 10.5-yr New Issue of MGII, RM4.5bn

II. 20.5-yr New Issue of MGS, RM5.0bn (RM2.5bn auction + RM2.5bn private placement)

III. 15-yr Reopening of MGII 07/36, RM5.0bn (RM2.5bn auction + RM2.5bn private placement)

IV. 7-yr New Issue of MGS, RM5.0bn

Source: BIMB Securities Research - 13 May 2022