● Malaysia’s International Investment Position (IIP) recorded a smaller net surplus in 4Q22 (RM63.0b; 3Q22: RM76.3b), but remained supported by relatively high international reserve assets

- This signals a moderated external position, but the overall net asset remains indicative of relative safety for Malaysia in the event of external shocks, on the basis of its international balance sheet. The easing surplus was driven by a decrease in net assets, particularly due to a sharp decline in other investment, which fell at a faster pace than net liabilities.

- Net Assets (RM2.23t; 3Q22: RM2.25t): declined for the first time in over two years (-RM28.0b; 3Q22: 89.9b), driven by plunging other investment (-RM46.5b; 3Q22: RM40.4b) and direct investment (-RM7.7b; 3Q22: RM37.2b), which outweighed a recovery in portfolio investment assets (RM17.1b; 3Q22: -RM10.0b).

- Net Liabilities (RM2.16t; 3Q22: RM2.18t): registered its first decrease in six quarters (-RM14.7b; 3Q22: RM75.6b), due to a larger decline in portfolio investment liabilities (-RM7.7b; 3Q22: -RM1.7b) and a notably smaller increase in direct investment liabilities (RM6.5b; 3Q22: RM37.3b) amid slowing FDI inflows.

● Direct investment recorded higher net liabilities of RM273.1b (3Q22: RM258.9b) as the Foreign Direct Investment (FDI) position increased at a relatively faster pace than Direct Investment Abroad (DIA)

- FDI (RM875.1b; 3Q22: RM860.8b): on a quarterly basis, FDI into Malaysia rose at a softer pace of RM14.4b (3Q22: RM24.6b) but was sufficient to raise the net liabilities position. The manufacturing sector remained the largest recipient (43.5%), followed by financial activities (23.5%) and wholesale & retail trade (23.5%). The sources for FDI was mainly from Singapore (20.5%), the US (11.5%), and Hong Kong (10.6%).

- DIA (RM602.1b; 3Q22: RM601.9b): the expansion moderated significantly (RM0.1b; 3Q22: RM24.5b), leading to a deeper deficit in net direct investment. The investment was primarily in financial activities (41.6%), followed by mining & quarrying (12.6%) and manufacturing (9.9%). The recipients of investment abroad was primarily led by Singapore (21.1%), followed by Indonesia (10.5%), and the Netherlands (6.5%).

● Portfolio investment registered lower net liabilities of RM62.7b (3Q22: RM87.6b) as foreigners decreased holdings of Malaysian debt, whilst Malaysians increased holdings of foreign equities

- Debt Securities (-RM328.6b; 3Q22: -RM349.8b): the position registered a strong net increase (RM21.1b; 3Q22: - RM4.1b) as foreigners sold domestic bonds, indicated by a decrease in portfolio investment debt liabilities (-RM22.6b; 3Q22: RM5.4b).

Source: Kenanga Research - 13 Feb 2023