KUALA LUMPUR: Malaysia continued to record higher foreign portfolio inflows at the start of 2021 totalling RM2.8 billion in January, mainly led by net foreign buying of debt securities at RM3.7 billion in January.
United Overseas Bank (Malaysia) Bhd (UOB Malaysia) in a report noted that foreigners bought Malaysian Government Securities (MGS) worth RM2.3 billion or about 61 per cent of total RM3.7 billion debt inflows last month.
This was followed by Government Investment Issues (GII) for about RM0.9 billion, Malaysian Treasury Bills at RM0.4 billion and private debt securities including private sukuk at RM0.2 billion for the month.
UOB Malaysia also noted that foreign holdings of Malaysian government bonds (MGS & GII) remained at the highest level in more than 4 years, at RM205.3 billion or 24.2 per cent of total government bond outstanding as at January this year.
For MGS alone, foreign investors holdings stood at RM179.6 billion, which is equivalent to 40.5 per cent of total MGS outstanding. For GII, overseas investors owned RM25.7 billion, which is equivalent to 6.8 per cent of total GII outstanding in January.
The bank-backed research firm said foreigners remained net sellers of Malaysian equities, leaving their ownership of Malaysian equities at a record low of 20.7 per cent of total market capitalisation in January this year similar to December 2020.
Further, Bank Negara Malaysia's (BNM) foreign reserves edged up for the third straight month by US$1.0 billion month-on-month (mom) to a 33-month high of US$108.6 billion as at end-January 2012.
UOB Malaysia said the latest reserves position is sufficient to finance 8.6 months of retained imports and is 1.2 times total short-term external debt.
Foreign reserves was supported by portfolio flows into bonds as well as strong current account position thanks to a healthy merchandise trade surplus, the firm noted.
OUB Malaysia said while BNM has yet to publish its Jan 2021 foreign exchange (FX) swaps data, the central bank's net short position in FX swaps narrowed for the eighth consecutive month by US$0.6 billion mom to US$5.8 billion as at end-December 2020.
It is equivalent to 5.4 per cent of total foreign reserves, the lowest level since November 2016, it said.
"Despite domestic challenges, we think Malaysia's government bonds remain attractive as capital flows into emerging markets remain strong given low global interest rates and high market liquidity that boosts positive carry-trades.
"To watch are the release of Malaysia's fourth quarter (4Q) and 2020 gross domestic product (GDP) numbers which will be released on February 11, BNM monetary policy meeting on 4 March, the release of BNM Annual Report 2020 end-March, and FTSE
Russell's March WGBI review," senior economist Julia Goh and economist Loke Siew Ting said in the note.
The research firm also highlighted that Malaysia will start the first phase of its vaccine program by end-February for front liners, the second phase in April for high-risk groups, and the third phase in May for aged 18 and above.
"We think the current global landscape such as global reflation trade, prolonged low-interest rates, and ongoing fiscal support, remains supportive of broad dollar weakness throughout the year.
"We expect improving recoveries across Asian countries particularly in China to further drive Asian currencies' strength including the ringgit against the US Dollar. We reiterate our USD/RM forecast of 4.00 by mid-2021 and 3.95 by year-end," they said.