- Foreign funds reduced their holdings by RM9.8 billion in the local bond market in April (March 2019: +RM2.9 billion), bringing total foreign holdings to RM180.1 billion (March 2019: RM190.0 billion). This was the lowest level of foreign holdings in local bonds since March 2017. By end-April, the foreign share of local bonds fell to 12.5% (March 2019: 13.1%) of total outstanding. MGS and GII contributed most of the outflows, followed by corporate bonds and treasury bills. MGS and GII recorded net outflows of RM7.1 billion (March 2019: +RM2.7 billion) in April. YTD, the local bond market recorded total net outflow of RM4.7 billion (January-April 2018: -RM1.3 billon).
- The sudden turnaround in foreign holdings of local bonds was due to a knee-jerk reaction towards announcements by: (1) Norway’s US$1.0 billion Sovereign Wealth Fund (SWF) which plans to omit emerging market (EM) bonds from its fixed-income benchmark; and (2) FTSE Russell that placed Malaysia on the watch list for potential exclusion from the World Government Bond Index (WGBI). Some of the outflows were also due to the large volume of matured GII papers in April (RM10.0 billion).
- We are of the view that volatility in the financial market will persist in the short term as investors continue to assess global development as well as prospects of the ringgit and the Malaysian economy. We maintain our average ringgit-USD forecast of RM4.05-RM4.20 for 2019.
Tan Jack Fong, +603-2717 2958/ firstname.lastname@example.org
Nor Zahidi Alias, +603-2717 2936/ email@example.com