Foreign investors turned net buyers in August

Published on 15 Sep 2021.

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Foreign investors charted a surprise return in August despite heightened political uncertainties in Malaysia. The bond market registered a robust net foreign inflow of RM6.6 bil (July: outflow of RM3.6 bil), mainly driven by MGS and GII (RM6.2 bil). August’s foreign inflow was largely concentrated in the second half of the month, coinciding with the appointment of the ninth prime minister on 22 August. The market may have taken comfort in the swift resolution of the political quagmire, as the 10-year MGS yield fell 4 bps while the ringgit appreciated sharply against the USD from 4.24 to 4.17 towards the end of August. 

The present favourable yield spread of MGS over UST (around 190-200 bps) should continue to drive foreign interest in the near term. Over the longer horizon however, the monetary policy stance by central banks of developed markets remains a key driver of fund flows.  At the Jackson Hole Economic Symposium on 27 August, the US Fed chair reiterated that the central bank is in no hurry to raise rates.  The upcoming Federal Open Market Committee meeting from 21-22 September where the Fed will release its latest “dot-plot” projections, is a crucial market watch on future rate direction. Meanwhile, the European Central Bank on 9 September decided to moderately reduce the pace of its asset purchase programme in 4Q 2021, insisting however that its action did not amount to tapering. All said, rate hikes may likely still be some way off, although markets may price in these expectations sooner.

 

Analytical contact Woon Khai Jhek, CFA (603) 3385 2512 khaijhek@ram.com.my

Media contact Sakinah Ariffin (603) 3385 2505 sakinah@ram.com.my

 

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