Foreign funds return to the Malaysian bond market


PETALING JAYA: Foreign investors resumed their net buying activity in August for a total of RM6.6 billion after being net sellers in the previous two months, due to their increased confidence in the Malaysian economy.

The Malaysian Rating Corp (MARC) said the resumption in foreign purchases offset cash outflows in June and July for a total of RM 4.1 billion.

“Foreign holdings amounted to RM250.4 billion (July: RM243.8 billion) with foreign investors holding 14.6% of total local bonds outstanding (July: 14.3%)”, did he declare.

MARC pointed out that foreign inflows were mainly concentrated in Malaysian government securities (MGS) and government investment issues (GII).

Foreign AMS holdings increased by RM 3.1 billion to RM 191.7 billion (July: RM 188.6 billion), equivalent to 40.3% of the total AMS outstanding (July : 40.4%).

GII’s foreign holdings increased from RM 3.2 billion to RM 34.4 billion (July: RM 31.2 billion), equivalent to 8.6% of GII’s total stock (July: 7.8%).

“Foreign demand for AMS and GII has been supported by increased confidence in the Malaysian economy amid rapid vaccination rates and the gradual reopening of economic sectors.

MARC said that despite the influx of foreign funds, AMS yields were pushed higher in the secondary market in August.

“The AMS yields have been traded higher as the volume of trade has declined due to local investors being left on the sidelines amid political uncertainty in Malaysia.

“The AMS yields were also influenced by the rise in yields on US Treasuries ahead of the conclusion of the Jackson Hole forum on August 27th.

“Investors were concerned about the prospect of a slowdown being announced as there were signs of economic growth, albeit at a moderate pace, in the United States,” he said.

MARC pointed out that towards the final days of the month, AMS yields started to ease slightly amid increased clarity on Malaysia’s political front following the appointment of the new prime minister.

At the end of August, the yield on the 10-year AMS stabilized by four basis points (bps) at 3.21% (July: 3.17%).

Meanwhile, the total AMS trade volume in August fell to RM31.9 billion (July: RM42.8 billion).

The MARC also noted that in contrast, generic corporate bond yields were significantly lower in August, which saw their credit spreads narrow as AMS yields rose.

Yields on generic AAA, AA and A rated corporate bonds fell one to five basis points on the three to 15 year curve.

Most of the gains have been concentrated along the curve, causing their yield curves to steepen.

“Gains in corporate bonds were supported by the easing of movement restrictions and increased foreign demand.

Meanwhile, the volume of corporate bond trading was slightly higher in August at RM13.3 billion (July: RM12.3 billion), ”he said.

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