KUALA LUMPUR: Foreign investors injected RM7 billion into Malaysian equities and debt securities in May, marking the largest inflow since July 2023.
This came after RM800 million was taken out in April, according to UOB Research.
The research firm noted that this influx turned the cumulative foreign portfolio, comprising both equities and bonds, positive for the first time this year. It was RM700 million between January and May.
It noted that RM5.5 billion of the total RM7 billion went into debt securities, compared to RM1.5 billion into equity.
Meanwhile, it said that Bank Negara Malaysia (BNM)'s foreign reserves increased for the first time in four months, rising by US$800 million month-on-month to US$113.6 billion as of May.
According to UOB Research, these reserves are sufficient to finance 5.4 months of imports of goods and services and are equal to 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.
Moving forward, UOB Research expects a volatile path for capital flows into emerging markets like Malaysia, citing uncertainties around the US Federal Reserve's rate cut cycle, lingering geopolitical risks, increasing trade protectionism, and rising concerns about domestic policy reforms.
It said that the ringgit will remain subject to volatility despite ongoing coordinated measures by the authorities.
The firm pointed out that Bank Negara had estimated that there is US$6 billion to US$7 billion of potential annual income to be converted, which could help offset negative outflows and stabilise the ringgit.
A stronger correlation with China's yuan, which is expected to rebound in the second half of 2024, could also benefit the ringgit, it said.
"Hence, we project 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.
Key events to watch for Malaysia in the coming month include May external trade data on June 20, May inflation figures on June 25, and Bank Negara's monetary policy meeting on July 10-11.