● Foreign investors turned net buyers of Malaysia’s debt securities in November

 Net foreign purchase increased to a 25-month high of RM8.0b (Oct: -RM0.5b) or 4.3% MoM (Oct: - 0.3%) to RM196.6b (Oct: RM188.6b). Consequently, share to a total of Malaysia’s debt jumped to 13.2%, an 8-month high.

● Inflow in the debt market was driven by a net increase in holdings of Malaysian Government Securities (MGS), Malaysian Government Investment Issues (GII) and Private Debt Securities (PDS)

 MGS (+RM4.7b; Oct: -RM0.5b): foreign holdings share of total MGS expanded to 40.5% (Oct: 37.9%), a 13-month high though total outstanding of MGS decreased to RM391.1b (Oct: RM405.6b).

 GII (+RM3.0b; Oct: +RM0.1b): foreign holdings share of total GII jumped to 18.4%, an 8-month high.

 PDS (+RM0.4b; Oct: +RM0.2b): foreign holdings share increased to 1.8% (Oct: 1.7%).

 However, the inflow was partially offset by marginal outflow in the Malaysian Treasury Bills (-RM0.2b) and shortdated bonds (-RM0.1b).

● Meanwhile, foreign investors remained net sellers of Malaysian equities for five straight months

 Net outflows of equity funds further increase to RM1.4b (Oct: -RM0.5b).

● Overall capital market recorded a net inflow of foreign funds (+RM6.6b) after a short-lived outflow in October (- RM1.0b), backed by renewed optimism on the latest development in the US-China phase-one trade deal

 Year-to-date, total foreign capital registered a net inflow of RM1.8b versus RM30.8b outflow in the same period of last year.

 Net-outflow may persist in the near term should there be any delay in the signing of the phase-one trade deal as well as the US Fed policy shift.

 Against this development, the US 10-year Treasury note average yield jumped to 1.81% in November, an increase of 10 basis point (bps). Similarly, the benchmark Malaysian 10-year MGS average yield edged up by two bps to 3.41%, narrowing the average yield spread to 161 bps (Oct: 169 bps).

● BNM has room for further rate cuts as soon as in 1Q20 to support growth amid lingering uncertainties going forward

 Though the trade war development now seemed to show some positive signs, we retain our cautious outlook as uncertainties from the external front persist in particular on the global trade slowdown and geopolitical risk.

 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. Going forward, we expect Ringgit to strengthen to RM4.15 by end of 2020.

Source: Kenanga Research - 9 Dec 2019