KUALA LUMPUR, March 8 — Foreign investors’ interest in Malaysian assets remained strong, with non-resident portfolio inflows into the country reaching a six-month high of RM5.9 billion in February 2022 from RM3.8 billion in January 2022, according to UOB Global Economics and Markets Research.

Both Malaysian debt and equity markets witnessed net foreign purchases of RM3.1 billion and RM2.8 billion, respectively, in February 2022 compared with RM3.5 billion and RM300 million, respectively, in the previous month, it said.

"Year-to-date, foreign portfolio inflows amounted to RM9.7 billion in the first two months of 2022, slightly higher than the RM9.2 billion inflows recorded in January-February 2021, driven by resilient demand for debt securities at RM6.6 billion versus RM10.9 billion in January-February 2021, and a return of buying interest in equities at RM3.1 billion against an outflow of RM1.7 billion in the first two months of 2021,” it said.

In a note today, the research house said February’s foreign debt inflows were propelled by all sub-instruments, led by government investment issues (GII).

"Non-resident holdings of Malaysian government bonds (Malaysian Government Securities, MGS + GII) jumped for the third straight month by RM2.2 billion to a new all-time high of RM240.4 billion at end-February 2022 (end-January: up RM4.3 billion to RM238.2 billion), equivalent to 25.3 per cent of total government bonds outstanding (end-January: 25.5 per cent),” it said.

Foreign holdings in MGS also marked a new all-time high at RM194.6 billion versus just RM500 million last month (end-January: up RM4.6 billion to RM194.1 billion), bringing overseas investors’ shareholdings of MGS to 39.3 per cent of total MGS outstanding (end-January: 39.6 per cent).

"Similar to GII, foreign investors raised their holdings by RM1.7 billion to a new record high of RM45.8 billion (end-January: down RM300 million to RM44.2 billion), which made up 10.5 per cent of total GII outstanding (end-January: 10.4 per cent),” it said.

According to the report, risk-off sentiment and sky-rocketing commodity prices sparked by Russia-Ukraine tensions and sanctions have initiated relocation of asset into commodity-producing countries, including Malaysia.

However, it cautioned that expectations of narrower interest rate differentials, domestic policy uncertainty, constrained fiscal policy space, and increasing downside risks to domestic growth prospects are wildcards for Malaysia’s foreign portfolio flows and currency outlook, should geopolitical risks escalate further.

"The United States Federal Reserve (US Fed) is anticipated to start its rate hike cycle at next week’s Federal Open Market Committee (FOMC) meeting on March15-16, while most regional central banks, including Bank Negara Malaysia (BNM), are projected to begin normalising their monetary policy at a more measured pace and later than the US Fed.

"This will likely lead to a narrower interest rate differential between regional central banks, including Malaysia, and the Fed,” it said.

The research house highlighted key events to watch out for, namely the Russia-Ukraine conflict, FOMC’s March meeting outcome, Johor state elections, BNM’s Annual Report 2021, Economic and Monetary Review 2021, Financial Stability Review for the second half of 2021 and its latest economic forecasts for gross domestic product and inflation on March 30. — Bernama