KUALA LUMPUR: Foreign outflow of Malaysian equities and debt securities are expected to persist this year on Covid-19 fears, an imminent recession and plunge in oil price, analysts said.
The possible outflow, however, would be slightly softened by a more severe pandemic situation in the US and dovish policy stance adopted across major central banks, they added.
As such, the ringgit is expected to remain volatile with a downward bias against the US dollar in the immediate term, before ending the year at 4.30 compared to 4.09 in 2019.
Kenanga Research said foreign investors remained as net sellers of Malaysia’s debt securities in March, pulling out funds at the fastest pace in 22 months at RM12.3 billion from RM8.1 billion in February.
Total foreign holdings fell to a nine-month low to RM187.8 billion from RM200.1 billion in February.
This caused their share in Malaysia’s total outstanding debt to fall to 12.3 per cent (February: 13.2 per cent), the lowest since June 2019, Kenanga Research said in a report today.
The larger outflow was due to a net decrease in holdings of Malaysian Government Securities (MGS) at -RM12.5 billion (February: -RM7.1 billion) and conventional private debt securities at -RM210 million (February: -RM170 billion).
For the equity market, foreign fund outflows had persisted for nine straight months in March, said Affin Hwang Capital.
The outflow amount stood at RM5.5 billion, the largest in 22 months, from the RM2.0 billion outflow in February.
“In the first three months of 2020, net outflows from the equity market amounted to RM7.6 billion compared to a net inflow of RM1.3 billion in the same period in 2019,” Affin Hwang said.
Overall, the capital market registered a staggering RM17.8 billion (February: -RM10.1 billion) of net outflow in foreign funds, the largest since the general election season back in May 2018.
Affin Hwang said in March, the three-year and the 10-year MGS yield had risen by 17bps and 53bps to 2.8 per cent and 3.3 per cent respectively.
This was partly due to outflows from emerging market economies led by ‘flight to safety’ over concerns about the economic impact of Covid-19 and as well as fears of a global recession.
“This is despite the two emergency cuts by the US Fed to 0-0.25 per cent and another 25bps overnight policy rate cut by Bank Negara Malaysia in March,” the firm added..
Meanwhile, Kenanga Research said Bank Negara was expected to pause any further rate cuts for now.
The central had already embarked on an aggressive monetary easing recently and this might prompt it to save its leftover bullets for future needs, the firm added.