Overview

• Up USD4.1b in March. Malaysia’s foreign reserves extended its uptrend for the 15th consecutive month, rising USD4.1b to reach USD107.8b as at end of March following the adjustment for foreign exchange revaluation changes.
• Its current position is sufficient to finance 7.4 months of retained imports and is 1.1 times the short term external debt.
• Foreign equity outflow recedes on stronger Ringgit. The capital market, specifically the equity market, saw relatively marginal foreign fund outflows of RM0.06b in March (Feb: -RM1.12b) as a stronger Ringgit provided buffer against global volatility.
• Exports - dampener to receipts. Recent export figures validated our view of a moderating exports trend. This, we expect would dampen repatriation of export earnings in the coming months.
• Bond yield falls, gap widens. The yield gap between the benchmark local and Treasury bonds remain favourable despite a fall in the local 10-year MGS yields in March. This may still be good enough to attract foreign funds.
• Potential capital inflows could be capped. We continue to see heightened risk of portfolio fund flows in the coming months due to the less attractive valuations of the FBMKLCI vis-à-vis regional markets, rising volatility in the global capital market as well as expectations for exports receipts to fall.

Reserves edges up in March. Malaysia’s foreign reserves gained 3.8% or USD4.1b to USD107.8b in March, marking its fifteenth consecutive month of expansion and the highest since February 2015. This is after taking into account the quarterly adjustment for foreign exchange revaluation changes. Year-todate, the reserves added USD5.4b, a much stronger pace compared to the preceding quarter’s USD1.2b. The reserve position remains sufficient to finance 7.4 months of retained imports and is 1.1 times the shortterm external debt.

Ringgit value of reserves falls following revaluation. Following the quarterly revaluation exercise, the local currency equivalent of foreign reserves fell for the second consecutive month by RM3.16b (Feb: -RM0.13b) to RM416.4b. This is mainly due to the strengthening of the Ringgit which appreciated by about 5.8% against the USD in the first three months of this year (based on the average 1Q18 vs 4Q17).

Source: Kenanga Research - 9 Apr 2018