KUALA LUMPUR, May 9 — Kenanga Research has maintained its optimistic outlook for Malaysian financial assets, particularly local government bonds, driven by growing confidence in potential rate cuts by the United States (US) Federal Reserve (Fed).

Despite prevailing uncertainties stemming from geopolitical tensions and concerns over US inflation, the research firm remains bullish on Malaysian financial markets, as indicated in its latest research note.

"We expect further weakening of the US economy, especially in the labour market, which may lead the Fed to initiate its first rate cut in September,” it said.

The research house said investors seeking higher yields may start reallocating their portfolios, potentially benefitting the Malaysian debt market as funds shift from the US to emerging markets (EM).

"While EM assets typically offer high yields, they are also associated with greater volatility.

"However, in Malaysia’s case, the expectation of stable inflation rates, unchanged monetary policy, and the potential for the ringgit to appreciate to its fair value make local government bonds appealing to foreign investors,” it added.

Meanwhile, Kenanga Research said foreign investors continued to buy into Malaysia’s debt for the second month in a row, with a net investment of RM0.6 billion in April (Mar: RM1.7 billion), driven by strong demand for Malaysian Government Securities (MGS).

Consequently, total foreign debt holdings rose to RM266.4 billion in April (March: RM265.8 billion).

"However, its share of the total outstanding debt fell slightly to 13.0 per cent (March:13.1 per cent), its lowest level since June 2020, mainly due to new issuances and reopening of MGS and Government Investment Issues, totaling RM19.5 billion,” it said.

On April 9-10, foreign investors accumulated a total of RM2.7 billion in Malaysian bonds, partly influenced by the positive domestic industrial production data.

However, in the following week, from April 15-16, they divested RM1.4 billion due to the Iran’s unprecedented attack on Israel over the weekend and hotter-than-expected inflation readings in the US, it said. — Bernama