Published on 24 Aug 2021.
Persistently high COVID-19 caseload and political uncertainties continued to erode foreign interest in MGS and GII in July. Net foreign pull out accelerated sharply to RM3.6 bil (RM497.1 mil in June), much of it from MGS and GII (RM3.2 bil).
Such subdued foreign participation is expected to continue into August, given the political strife that culminated in the resignation of the sitting government on 16 August 2021. Although a new Prime Minister was subsequently appointed on 22 August 2021, uncertainties may linger on until a confidence vote is tabled in the Parliament. As such, foreign participation will likely remain soft in the immediate term.
Once these uncertainties clear, the positive yield differentials over UST (averaging around 195 bps for 10-year MGS in August) should support demand for MGS/GII. However, demand for longer tenures will be limited by the repositioning of global funds to avoid duration risks in anticipation of policy rate normalisation by the US Federal Reserve and European Central Bank. Ramped-up vaccinations, leading to a more tangible path of economic recovery in 4Q 2021 and 2022, should also help buoy sentiments for Malaysian securities later in the year.
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