The re-escalation of the US-China trade conflict in May has battered the Malaysian equity and debt markets, with the second month of foreign portfolio outflows totalling 6.2 billion ringgit. This is compared to outflows of 11.2 billion ringgit in April, according to United Overseas Bank Global Economics and Market Research.
The renewed risk-off sentiment has prompted foreign investors to pare down their Malaysian equities by 2 billion ringgit last month, 600 million ringgit more than in April. Meanwhile, foreign selling of Malaysian debt securities halved to 4.2billion ringgit. Bank Negara Malaysia’s (BNM) foreign reserves fell to a 4-month low of US$102.3 billion at end May compared to US$ 103.4 billion at the end of April.
Of the total, Malaysian Government Securities (MGS) made up the biggest portion, with a total outflow of 3.8 billion ringgit. This was followed by Government Investment Issues (GII) whose outflows totalled 0.5 billion ringgit, with outflows for Treasury bills coming in at 0.01 billion ringgit.This trimmed foreign holdings of Malaysian government bonds (MGS & GII) to 158 billion ringgit or 20.9 per cent of total outstanding, the lowest level since Sep 2010. Conversely, overseas investors turned net buyers of private debt securities and private sukuk at 68.5 million ringgit and 25.8 million ringgit respectively in May.
In the equity market, foreign selling persisted with net 2 billion ringgit sold in May. This marked the fourth month of sell down, bringing year-to-date foreign equity outflows to MYR4.8bn. As such, foreign shareholdings of Malaysian equities fell to a 17-month low of 23.2 per cent in May, compared to 23.4 per cent in April.
Analysts believe that BNM will adopt a wait-and-see stance and keep rates on hold for now. This follows a pre-emptive policy rate cut of 25 basis points to 3.00 per cent last month.