The Sun Daily: Foreign investors back as net buyers of Malaysian bonds in May

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PETALING JAYA: Foreign investors returned as net buyers of Malaysian bonds in May, in spite of worsening growth prospects and rising deflationary risks, according to Malaysian Rating Corp Bhd (MARC).

Net foreign inflows came in at RM1.5 billion for the month, against an outflow of RM2 billion in

“As a result, total foreign holdings rose to RM187.3 billion, from RM185.8 billion previously,” said the rating agency in a statement.

It observed that the yields on Malaysian Government Securities (MGS) remained supported in May as Bank Negara Malaysia (BNM) cut its Overnight Policy Rate for the third consecutive time.

MARC noted that with growth prospects worsening and deflation risks rising in the face of the Covid-19 pandemic, there are high expectations of further monetary easing.

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“Support also came from BNM’s move to allow banking institutions to recognise MGS and Government Investment Issues (GII) to fully meet the statutory reserve requirement (SRR) compliance,” it said.

As a result, MGS saw the largest foreign inflows, with the flows largely concentrated in tenures at the front-end of the yield curve.

At the end of May, foreign holdings of MGS stood at RM150.5 billion, up 1.3% from April’s RM148.6 billion, the rating agency said.

It elaborated that the net foreign inflow into the local bond market in May suggests that Malaysia continues to remain on investors’ radar, and BNM’s monetary easing thus far and expectations of further easing down the road are part of the reason.

In addition, MARC said Malaysia’s external position remains commendable, thanks to persistent current account surpluses.

“On top of that, government debt is largely denominated in domestic currency, with that denominated in foreign currencies making up only around 3% of the total.,” it said. Meanwhile, in the primary market for MGS/GII, the rating agency observed that the overall demand was weaker even as gross issuance fell by 32.1%.

It calculated that while the 15-year GII commanded a respectable bid-to-cover ratio of 2.2x, the 10-year MGS recorded a lacklustre 1.7x, the lowest thus far this year.

“This was due largely to its large tender size of RM4.5 billion, one of the largest year-to-date. In the secondary market, however, there was investor interest.”

Unlike the case for MGS/GII, it noted that the gross issuance of long-term corporate bonds surged 129.0% to RM7.1 billion in May.

MARC explained that big jump was largely driven by issuances in the financial services and diversified holdings sectors.

Meanwhile, DanaInfra Nasional Bhd dominated the financial services sector with its RM2.8 billion Islamic medium-term notes (IMTN). In the diversified holdings sector, Danum Capital Bhd led with its RM2 billion IMTN.

At the end of May, foreign holdings of MGS stood at RM150.5 billion. – REUTERSPIX