KUALA LUMPUR: CIMB Economic Research expects continued capital inflows as the investors would still favour emerging markets given their resilient growth performance and the prospect of higher currency gains.

It said on Friday, Oct 8 that total foreign holdings of Malaysian debt securities rose to RM105.5 billion in August (RM102 billion in July), with higher inflows into Bank Negara Malaysia's (BNM) monetary note (RM25.5 billion or 24.2% of total) and the Government Securities (MGS) (RM63 billion or 59.8% of total).

"The equity market also recorded net inflows, as reflected in the KLCI which rose 2.9% or 41 points in September (versus 4.5% or 61.6 points in August)," it said.

In the latest development, it said BNM's international reserves rose strongly by US$5.5 billion to US$100.7 billion (RM310.8 billion) as at end-September (US$95.2bn at end-Aug).

This marks the highest net increase since February 2008, thanks to strong capital inflows and the central bank's intervention operations, which more than offset the quarterly adjustment for foreign exchange revaluation loss.

CIMB Economic Research said September's reserves level is sufficient to finance 8.5 months of retained imports and is 4.3 times the short-term external debt. Year-to-date, reserves rose 4.2% or US$4 billion.

It said Malaysia has benefited from the continued inflows of private capital as investors pouring more money in emerging markets on still good growth prospects relative to matured economies as well as the potential upside in regional currencies.

Year-to-date, the ringgit had strengthened by 10.8% against the US dollar, with a whopping 12.5% on-year rise in September. The ringgit hit RM3.085/US dollar on Sept 29, the highest level in more than 13 years.

The research house said domestic liquidity remains ample. The cumulative locked-in excess liquidity by BNM remained substantial at RM218.7 billion as at end-September (versus RM214.9 billion as at end-August).

The large build-up of excess liquidity over the previous years would provide liquidity space for the central bank to recycle excess liquidity back into the system should domestic liquidity conditions tighten.