● Foreign investors retained as net sellers of Malaysia’s debt securities in March, pulling out funds at the fastest pace in 22 months (-RM12.3b; Feb: -RM8.1b)

- Total foreign holdings fell to a nine-month low (RM187.8b; Feb: RM200.1b), with its share in Malaysia’s total outstanding debt fell to 12.3% (Feb: 13.2%), the lowest since June 2019.

- Attributable to worsening COVID-19 situation and plunge in global oil price triggered by the price war between Saudi Arabia and Russia.

● Larger outflow was due to a net decrease in holdings of Malaysian Government Securities (MGS) and conventional Private Debt Securities (PDS)

- MGS (-RM12.5b;Feb:-RM7.1b): foreign holdings share of total MGS shifted down to 36.8% (Feb: 39.6%), a 10-month low.

- Conventional PDS (-RM0.21b; Feb: -RM0.17b): foreign holdings eased to a four-month low (4.4%; Feb: 4.5%).

● For the equity market, foreign fund outflows persisted for nine straight months in March

- Largest outflow in 22 months (-RM5.5b; Feb: -RM2.0b).

● Overall, the capital market registered a staggering RM17.8b (Feb: -RM10.1b) of net outflow in foreign funds, the largestsince the general election season back in May 2018.

● Debt market to endure further outflow in the near term as risk-off sentiment dominates

- The rush to safe havens is reflected in the US 10-year Treasury average yield which dropped by 64 basis points (bps) to a noteworthy 0.81% in March (it briefly touched an all-time low of 0.318% in overnight trading on 8 March), while the 10-year MGS average yield edged up by 25 bps to 3.18%, widening the average yield spread to 236 bps (Feb: 147 bps).

- Outflow to persist on COVID-19 fears, an imminent recession and plunge in oil price. Nonetheless, it will be slightly softened by a more severe pandemic situation in the US and dovishpolicystance adopted across major central banks. As such, Ringgit will remain volatile with a downward bias against the USD in the immediate term, before it ends the year at 4.30 (2019: 4.09).

- For now, BNM is expected to pause any further rate cuts, noting that it has already embarked on an aggressive monetary easing recently and that it may decide to save its leftover bullets for future needs.

Source: Kenanga Research - 8 Apr 2020