KUALA LUMPUR: Foreign investors returned to the Malaysian bond market in June, recording net inflows of RM4.9 billion compared with net outflows of RM4.3 billion in May, supported by easing geopolitical tensions and continued confidence in the country’s economic fundamentals, according to Kenanga Investment Bank Bhd (Kenanga IB).
In a research note today, the investment bank said foreign holdings of Malaysian debt securities increased to RM309.8 billion in June from RM304.9 billion in May, with the foreign share of total outstanding debt edging up to 13.2 per cent from 13.1 per cent previously.
“Foreign inflows surged between June 10 and June 16, with more than RM8.0 billion flowing into government bonds following the easing of US-Iran tensions and the reopening of the Strait of Hormuz.
“The RM3.7 billion in government bond outflows on June 30 reduced the overall net inflow for June,” it said.
Kenanga IB said stronger domestic economic data and resilient fundamentals supported investor sentiment, but the Federal Open Market Committee’s (FOMC) shift towards a more cautious, higher-for-longer interest rate stance remained a headwind for demand for emerging market bonds.
The investment bank said the inflows were mainly driven by strong demand for Malaysian Government Securities (MGS), Malaysian Treasury Bills (MTB) and corporate bonds and sukuk (CBS), while Government Investment Issues (GII) continued to register outflows.
According to Kenanga IB, MGS recorded net foreign inflows of RM3.4 billion in June, reversing net outflows of RM2.0 billion in May, while foreign ownership remained unchanged at 33.6 per cent, whereas MTB attracted RM1.0 billion in net inflows, lifting foreign ownership to 27.7 per cent from 5.6 per cent in the previous month.
Meanwhile, net inflows into CBS moderated to RM0.9 billion from RM2.5 billion previously, lifting foreign ownership to 3.0 per cent.
GII continued to record net outflows, although these eased to RM0.8 billion from RM5.0 billion in May, with foreign ownership edging down to 6.4 per cent in June from the previous month’s 6.6 per cent.
Kenanga IB said that despite the recovery in bond flows, foreign investors remained net sellers of Malaysian equities in June, recording net outflows of RM2.4 billion, albeit at a slower pace than RM3.6 billion in May.
“Outflows were mainly concentrated in the financial services as well as the consumer products and services sectors, although investor sentiment improved in the middle of the month,” it said.
Kenanga IB also said Malaysia’s capital market recorded net inflows of RM2.5 billion in June, reversing net outflows of RM7.8 billion recorded in the previous month.
Looking ahead, Kenanga IB said Malaysia remains well-positioned to attract foreign inflows, supported by resilient economic growth, contained inflation, stable sovereign ratings, a predictable monetary policy framework and deep domestic liquidity.
“Despite early July outflows, we remain constructive on the local debt outlook, as improving ringgit prospects and lower geopolitical risks should support investor demand and reinforce Malaysia’s appeal as a relative safe haven,” it said. – BERNAMA
