• Foreign investors remained net buyers of Malaysia's debt securities for the fourth successive month in August, albeit lesser than the preceding month (RM3.0b; Jul: RM7.1b)
  • Total foreign holdings edged up to RM209.0b (Jul: RM206.0b), the highest level since Mar 2018, with its share to Malaysia’s overall debt increased to 13.3% (Jul: 13.1%), a 7-month high.
  • Malaysia’s relative success in combating the COVID-19 pandemic coupled with broad dollar weakness has spurred investors’ interest on Malaysia’s treasury bonds hunting for higher yields.
• August’s inflow was driven by a net rise in the purchase of Malaysian Government Securities (MGS), offsettingnet selling in Malaysian Treasury Bills (MTB) and Malaysian Government Investment Issues (GII)
  • MGS (RM3.2b; Jul: RM7.7b): foreign holdings share of total MGS rose to a 6-month high (39.2%; Jul: 38.2%).
  • MTB (-RM0.2b; Jul: RM1.0b): foreign holdings increased to 34.2% (Jul: 29.4%), a 5-month high.
  • GII (-RM0.2b; Jul: RM0.1b): foreign holdings unchanged for third straight month (5.8%; Jul: 5.8%).
• For the equity market, foreign fund outflows extended for fourteenth consecutive months in August
  • Foreign selling in Bursa persisted in August (-RM1.5b; Jul: -RM2.6b), albeit at a slower pace, on coronavirus resurgence fears and Fed’s gloomy economic outlook.
• The overall capital market registered a sustained inflow of foreign funds for the third straight month in August (RM1.5b; Jul: RM4.5b) as government debt sales outweighed equity market selloff
• Debt market to continue attracting foreign demand as investors’ hunt for higher yields intensifies
  • The US 10-year Treasury average yield inched slightly higher by 4 basis points (bps) to 0.66% in August as new US debt issuance coupled with upbeat US economic data weighed on trading, pushing prices lower and driving yields higher. On the other hand, the 10-year MGS average yield fell by 13 bps to 2.51% in August, a new record low, narrowing the average yield spread to 186 bps (Jul: 203 bps).
  • Net inflows to continue in the 2H20 due to a sustainable increase of demand for higher-yielding bonds. This is in spite of our year-end USDMYR forecast is maintained at 4.30 (2019: 4.09) on the back of local political uncertainty, US dollar potential upside post-election and the re-emergence of COVID-19 cases globally.
  • Although there is still room for another interest rate cut, we expect BNM to pause the OPR at 1.75% at its policy meeting later this week (10 Sept), noting that it has already slashed the OPR by a total of 125 bps so far this year.

Source: Kenanga Research - 8 Sept 2020