Published on 21 Oct 2020.
Foreign buying of Malaysian government securities (MGS/GII) continued for the fifth consecutive month in September (+RM1.1 bil), driven by investors’ hunt for yields and the higher weight accorded to MGS/GII in the JPMorgan Government Bond Index-Emerging Market (GBI-EM). The keen foreign interest has also been robust relative to other emerging peers such as Indonesia and Thailand. YTD-September, total net foreign inflow into MGS/GII stood at USD1.0 bil, outpacing Indonesia (-USD12.9 bil) and Thailand (-USD2.2 bil) which continued to chart net outflows.
While favourable yield differential would continue to spur interest, the pace may soften in the months ahead. Key risks on the horizon include the resurgence in COVID-19 cases in Malaysia, the perceived power tussles over control of the federal government, the November US presidential election and the uncertainties surrounding BREXIT, which could diminish foreign inflows.
Meanwhile, domestic bond yields are likely to stay suppressed amid abundant global liquidity and low interest rates. Another OPR cut by Bank Negara Malaysia in November, the likelihood of which has been thrust back into the spotlight amid the resumption of the conditional movement control order in key urban areas, may also keep a lid on yields going forward.
Woon Khai Jhek, CFA
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