KUCHING: With Bank Negara Malaysia (BNM) announcing an increase in international reserves month-on-month (m-o-m) to US$138.6 (equivalent to RM424.9 billion) from US$138.3 billion (RM423.9 billion) as at end-October, analysts believe that Malaysia still remains a positive investment destination for foreign investments.
According to the research arm of Alliance Investment Bank Bhd (Alliance Research), the US$300 million margin increase in Bank Negara’s international reserves was attributable to surpluses from export activities as well as continued inflow of foreign funds into the financial system.
The research house added over the last three months Malaysia had been registering trade surpluses, cumulatively amounting to RM17.2 billion adding this had been instrumental to the rising reserves levels in the domestic economy.
“Malaysia remains a favourable destination for foreign investors due to the large positive interest rate differentials as well as strong growth prospects,” it added.
On the bank’s sustainable fund flow, it said excess liquidity of the banking system remained abundant, which was estimated at RM288.2 billion.
“Moving ahead, we believe the rising reserves trend would likely continue. We estimate a year-end level of US$142 billion versus US$133.6 billion at the end of 2011,” Alliance Research disclosed.
Bank Negara’s reserves position is sufficient to finance 9.2 months of retained imports and is 4.2 times of short-term external debt.
In view of the positive interest rate differential, which stands at 290 basis points (bps) in favour of Malaysia, foreign funds have been actively participating in the bond market searching for higher yield.
The research house noted for the portfolio front, foreign institutional investors were net buyers of Malaysian equities for the third consecutive month in October which stood at RM1.5 billion versus RM1.3 billion in September.
“However, based on our estimate, total market capitalisation of Bursa Malaysia dropped slightly to RM1.42 billion on 15 November compared with RM1.43 billion on 31 October, suggesting a net selling in the equity market during the first two weeks of November,” it said.
In tandem with the international reserves increase, the ringgit exchange rate weakened slightly to RM3.0648 per US dollar on 15 November, from RM3.0473 per US dollar at the end of October.
“As a result of increasing fund flows into the system, we estimate excess liquidity of the banking system remains abundant at RM288.2 billion at 14 November, compared to RM293.9 billion at end-October,” Alliance Research said.
Moving ahead, the research house believed the trend would likely remained the same with reserves expected to inch higher in the short-term to hit US$142 billion by year-end.