● Foreign investors turned net sellers of Malaysia’s debt securities in October
- Debt market: foreign holdings fell by RM0.5b (Sep: +RM0.9b) or -0.3% MoM (Sep: +0.5%) to RM188.6b (Sep: RM189.1b). Share to total Malaysia’s debt sustained at 12.7% for the third successive month, as Malaysia’s total outstanding debt increased by RM 0.2b.
- Equity market: foreign investors remained as net sellers for four straight months, but with a marginally smaller outflow in October (-RM0.5b; Sep: -RM0.6b)
- Overall capital market: net outflow of foreign funds (- RM1.0b), after a short-lived inflow in the preceding month (+RM0.3b), amid heightened concerns on emerging economies’ growth, a weaker Ringgit, prolonged US-China trade war uncertainty.
● Outflow in debt market driven by a net decrease in holdings of Malaysian Government Securities (MGS) and Malaysian Treasury Bills (MTB)
- MGS (-RM0.4b; Sep: +RM0.5b): foreign holdings share of total MGS inched up to 37.9% (Sep: 37.5%) as outstanding MGS decreased to RM405.6b (Sep: RM410.9b).
- MTB (-RM0.4b; Sep: +RM0.04b): foreign holdings share of total MTB tilted down to 28.1% (Sep: 28.2%).
- These offset increases in holdings of Malaysian Islamic Treasure Bills (MITB) by RM0.1b, Private Debt Securities (PDS) by RM0.2b and Malaysian Government Investment Issues (GII) by RM0.05b.
● Thus far, total capital outflow stood at RM4.8b versus RM24.8b in the same period of last year
- Net-outflow may persist in the near term: concerns on China’s economy following the release of a 27-year low 3Q19 GDP growth and delays in the signing of Phase-1 US-China trade deal to lead to risk-off mode.
- Total net outflow is expected to be less compared to last year (-RM33.6b): major central banks have pivoted towards monetary easing, with the Fed embarked on a third rate cut in October.
- Against this development, the US 10-year Treasury note average yield recorded a drop of 1 basis point (bps) to 1.70% in October, while the benchmark Malaysian 10-year MGS average yield edged down by 3 bps to 3.39%, widening the average yield spread to 169 bps (Aug: 165 bps).
● BNM left the OPR at 3.0% for the rest of the year, but may lean towards further easing (up to 50 basis points) in 2020 to uplift growth
- Headwinds emanating from the external sector including slowdown in major markets, declining global trade, and continued uncertainty on the final resolution of the US-China trade spat may still weigh on domestic growth.
- This would exert downward pressure on the Ringgit, which we project to depreciate to RM4.20 against the greenback (2018: RM4.13) by year-end.
Source: Kenanga Research - 11 Nov 2019
Created by kiasutrader | Aug 26, 2024