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Foreign investors pumped in RM7b into Malaysian equities, debt securities in May

KUALA LUMPUR: Foreign investors pumped in RM7 billion into Malaysian equities and debt securities in May, the largest inflow since July 2023.

In April, there was an outflow of RM800 million.

UOB Research said this helped to turn the cumulative foreign portfolio, both equities and bonds, flows into black for the first time this year, at RM700 million between January and May.

Equity inflows stood at RM1.5 billion and debt securities flows amounted to RM5.5 billion.

Meanwhile, Bank Negara Malaysia (BNM)'s foreign reserves also reversed course and increased for the first time in four months by US$800 million month-on-month to US$113.6 billion as of May. "It is sufficient to finance 5.4 months of imports of goods and services, and is 1.0 time the total short-term external debt. The import coverage ratio is comfortably above the generally accepted 'rule of thumb' adequacy threshold of three months, it said in a note.

UOB Research said it continues to expect a bumpy path for capital flows into emerging markets like Malaysia.

This is premised on the uncertain start to the US Federal Reserve's rate cut cycle, lingering geopolitical risks, increasing trade protectionisms and rising concerns about domestic policy reforms. The firm added that ringgit will remain subject to volatility despite the ongoing coordinated measures conducted by the authorities.

UOB Research said BNM estimated that there is US$6 billion to US$7 billion of potential annual income to be converted to help offset any negative outflows and to be an active stabilizer for ringgit.

"A stronger correlation to the China's yuan would also turn into a tailwind for the ringgit as yuan is widely expected to rebound in the second half (H2) of 2024," it said.

UOB Research projects US dollar to ringgit exchange rate to recover at a measured pace to 4.65 in the third quarter (Q3) and 4.60 in the fourth quarter (Q4) this year, from the closing on June 10 of 4.7230," it added.

UOB Research said the key events to watch for Malaysia in the coming one month include May external trade data (June 20), May inflation figures (June 25) and BNM's monetary policy meeting on July 10 to 11.

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