Foreign investors retained as net buyers of Malaysia’s debt securities for the second successive month

• - Dec (+RM8.1b; Nov: +RM8.0b): picked up to a 20- month high (RM204.7b; Nov: RM196.6b). Share to total Malaysia’s debt increased to 13.8%, a 14- month high.
• - 2019 (+RM19.9b; 2018: -RM21.9b): largest inflow in seven years, observed mostly in the 2H19 as investors hunted for higher-yielding emerging markets securities following slew of policy rate cuts by the central banks in the advanced economies and amid positive developments surrounding the US-China trade negotiation.

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

• - MGS (+RM5.5b; Nov: +RM4.7b): foreign holdings share of total MGS edged up to 41.6% (Nov: 40.5%), a 19- month high.
• - GII (+RM2.7b; Nov: +RM3.0b): foreign holdings share increased to 6.2% (Nov: 5.4%), a 20-month high.
• - PDS (+RM0.6b; Nov: +RM0.4b): foreign holdings share sustained at 1.8%.

Meanwhile, foreign investors remained as net sellers of Malaysian equities for six straight months

• - Dec (-RM1.2b; Nov: -RM1.4b): marginally smaller outflow.
• - 2019 (-RM11.2b; 2018: -RM11.8b): continued sell-off.

Overall capital market registered a larger inflow of foreign funds (+RM6.9b; Nov: RM6.6b) in December

• - 2019 (+RM8.7b; 2018: -RM33.6b): largest inflow in 6 years.

Debt market to continue experience a net inflow in 2020 as a search-for-yield behaviour dominates

• - Inflows to sustain particularly in the 1H20 amid a low interest rate environment brought about by the global accommodative monetary stance and a risk-on mode following the US-China trade truce. These might lift the Ringgit to near the 4.00 against the USD support level, before settling at 4.10 by end-2020.
• - Cautious growth outlook retained, in spite of ease in trade tension, as uncertainties from the external front persist, in particular with regards to global trade momentum and rising geopolitical tensions. Coupled with further weakness in domestic activities, we reckon that the BNM may decide to slash the OPR by 25 basis points to 2.75% as soon as early 1Q20.

Source: Kenanga Research - 9 Jan 2020