KUALA LUMPUR: Foreign investors pumped in RM12.7 billion into debt and equities in July, the largest monthly foreign portfolio inflows since Mar 2016, according to a report by UOB Economist Loke Siew Ting.
July marks the seventh straight month of net foreign purchases and the longest buying streak since late 2020
Non-resident inflows were in both Malaysian debt securities (RM11.3 billion) and equities (RM1.4 billion).
Cumulatively, foreign portfolio inflows totalled RM29.6 billion in the first seven months of 2023 (Jan-Jul 2022: -RM600 million), purely boosted by foreign buying of Malaysian debt securities (Jan-Jul 2023: +RM32.4 billion, Jan-Jul 2022: -RM6.8 billion) as equities recorded an outflow of RM2.8 billion so far this year (Jan-Jul 2022: +RM6.2 billion).
With that, foreign ownership of Malaysian equities dropped to a fresh record low of 19.7 per cent of total market capitalization last month (Jun: 19.9 per cent.
Loke said in the report that capital flows into Malaysia are expected to remain volatile as markets continue to price in the endgame of tightening cycle by global central banker, amid renewed risks to the inflation outlook and ongoing geopolitical tensions.
"A slower-than-anticipated economic recovery in China alongside a prolonged period of restrictive monetary policy across developed markets, in particular, suggest a more challenging global growth prospects for 2H23 and beyond, implying more cautious risk sentiment ahead," she said.
In July, all debt instruments drew an increase in foreign purchases, led by Malaysian Government Securities (MGS) (+RM7.6 billion, the most since July 2020), Government Investment Issues (GII) (+RM1.8 billion), and private debt securities, including private Sukuk (+RM1.0 billion).
Hence, foreign holdings of Malaysiangovernment bonds (MGS+GII) increased the most since Jun 2020 by RM9.4 billion to RM258.1 billion as at end-July, making up 24.0 per cent of total government bond outstanding.
It also marked the highest foreign shareholdings of Malaysian government bonds in 14 months.
Partly underpinned by the substantial foreign portfolio inflows, Bank Negara Malaysia (BNM)'s foreign reserves rebounded for the first time in four months, by US$1.5 billion month-on-month to US$112.9 billion as at end-July.
The latest reserves position is sufficient to finance 5.1 months of imports of goods & services and is 1.1 times the total short-term external debt.
BNM's net short position in foreign exchange swaps widened for two months by US$400 million month-on-month to US$24.1 billion as at end-June.