Overview

• Foreigners turn net buyer. Foreign funds increased their net holdings of Malaysian debt securities by RM6.7b in November (Oct: -RM2.8b). Specifically, foreign holdings in MGS increased by RM7.1b, while GII declined by RM1.9b. Overall, foreign holdings of total Malaysian debt securities rose to 15.9% from 15.4% in October.
• GII redemptions drags down foreign holdings. An estimated RM7.5b worth of GII was due for redemption in November which could partly explained its decline in foreign holdings.
• Fed rate hike remain key risk, stronger economy to cushion the impact. The imminent US fed funds rate hike in December remains the dominant factor that poses a risk of capital outflows in domestic debt markets. However, we see the recent strengthening of the economy to help retain investors’ confidence and interest in Malaysian assets
• OPR hike expected in 2018. In view of the firming domestic economic growth as well as a likely attempt to partly cushion the impact of the Fed rate hike on the capital market, we believe Bank Negara would raise the OPR by 25 basis points in the 1Q18.

Foreigners turned net buyer. Malaysian debt securities saw strong foreign buying activity in November after a brief net outflow in the preceding month. Net foreign purchase of Malaysian debt securities totaled RM6.7b, compared to a net outflow of RM2.8b in October. Consequently, total share of foreign holdings in Malaysian debt securities bounced to 15.9% from 15.4% in October. Year-to-date, however, total foreign holdings of Malaysian securities remains a net outflow of RM10.6b.

MGS inflows drove overall holdings. The local debt market received broad based inflows of foreign funds across its different types of securities in November. This was mostly driven by a RM7.1b net inflow in Malaysian Government Securities (MGS) (Oct: -RM3.5b); followed by +RM0.7b in Malaysia Islamic Treasury Bills (MITB); +RM0.6b in Malaysian Treasury Bills (MTB); +0.4b in Islamic private debt securities. Conversely, foreigners sold a net RM1.9b of Government Investment Issues (GII) in November. As a result, foreign holdings of MGS rose to 44.3% from 42.7% in October; while GII decreased to 6.8% from 7.4% in October. The November fund flows data suggests that foreign funds’ appetite for domestic debt remains firm despite the highly anticipated Fed funds rate hike after the Federal Open Market Committee (FOMC) meeting on Dec 12-13.

Source: Kenanga Research - 12 Dec 2017