KUCHING: Foreign investors are expected to continue exiting the Malaysian bond and equity markets but analysts believe Malaysia’s economic fundamentals and financial system remained intact and current account is still in surplus despite at a lesser pace than before.
TA Securities Holdings Bhd’s research arm (TA Securities) viewed that the huge outflow of foreign holdings will not lead to a collapse in the Malaysian bond market.
This comes as Malaysia still has domestic institutional investors, such as Employees Provident Fund (EPF) and the insurance industry to support the market should foreign investors decided to exit.
“Foreign investors are expected to continue exiting the Malaysian bond and equity markets as based on historical trend, foreigners would normally reduce their ownership in the Malaysian Government Securities (MGS) after it reaches maturity,” it explained in a note yesterday.
In August 2015, foreign ownership in the MGS has reduced to 46.8 per cent as compared to 48.6 per cent in the middle of this year.
According to Bank Negara Malaysia, foreign holdings in MGS declined to RM157.4 billion in August 2015, down from RM164.4 billion in July 2015.
“Some foreigners could possibly exit the Malaysian bond market this week after about RM11 billion worth of MGS matured on September 30, 2015.
“There will be another MGS due in mid-October 2015 worth RM8.2 billion. Based on the historical trend, foreigners would normally reduce their holdings in MGS after maturity,” TA Securities said.
Nevertheless, the research team believed that this situation would not likely continue towards the end of the year as there will be only one MGS due in October 2015 with the next one on July 15, 2016 (worth RM11.5 billion) and September 15, 2016 (RM15.2 billion).
Aside from that, TA Securities said the weakening ringgit coupled with external headwinds have also increased selling pressure in the bond market, leading to a spike in the bond yield to as high as 4.4 per cent on September 29, 2015 before sliding to 4.1 per cent on October 1, 2015.
“We foresee the ringgit to remain on a depreciating mode going forward and to probably touch RM4.50 against the US dollar by year-end, depending on the development unfolded as there were a lot of uncertainty in the world currently.
“The weakening ringgit would be amplified if the foreigners decided to liquidate in a big way. On average, the ringgit is expected to be at RM3.89 in 2015 (year to date at RM3.79) as compared to RM3.27 in 2014,” it observed.
“Nevertheless, Bank Negara’s governor has assured that there is no need to re-peg or impose capital control.
“This is because Malaysia has the market mechanism that adjusted to certain economic situation,” it added.
As at 2pm, the ringgit was at RM4.43 against the dollar. The Malaysian ringgit slid to fresh 17-year lows against the US dollar towards the end of September 2015 as persistent worries about the health of China’s and global economies weighed on risk sentiment and dented emerging Asian currencies.
On a quarterly comparison, TA Securities said the ringgit has declined by 14.3 per cent against the US dollar, 14.5 per cent against the euro and 15.8 per cent against the yen in the third quarter of 2015 (3Q15) while year-to-date, the ringgit has declined by 20.5 per cent against the US dollar.
Meanwhile, the research team pointed out that foreign ownership in the equity market continued to decline to a cumulative RM18.1 billion in January to September 2015, surpassing RM6.9 billion outflows recorded in 2015.