KUALA LUMPUR: Malaysia recorded the highest foreign portfolio outflows in June at RM5.4 billion, the biggest since March 2020.
This was triggered by outflows in both Malaysian debt securities at RM4.1 billion and equities at RM1.3 billion last month.
UOB Malaysia economists Julia Goh and Loke Siew Ting noted that this was in line with emerging markets' (EMs) capital outflows that were weighed by lingering geopolitical risks, tighter global monetary conditions and surging inflation.
"Looking at the debt securities space, foreign investors sold all but Malaysian Treasuries Bills last month.
"Government Investment Issues (GII) and Malaysian Government Securities (MGS) recorded the heaviest foreign selling, taking foreign holdings of Malaysian government bonds (MGS+GII) down the most in 27 months by RM4.3 billion to RM229.7 billion as at end-Jun.
"It was the lowest outstanding amount since Nov 2021, and equivalent to 23.4 per cent of total government bonds outstanding, the smallest shareholding since Sep 2020," they said.
For MGS alone, Goh and Loke said non-resident held an outstanding amount of RM188.9 billion or 36.5 per cent of total MGS outstanding, which was the lowest shareholding since May 2020.
Foreign holdings of GII reduced to a seven-month low of RM40.8 billion or 9.2 per cent of total GII outstanding, from RM44.2 billion or 10.1 per cent as at end-May.
In the second quarter of 22, foreign portfolio outflows totalled RM6.2 billion , with debt outflows of RM5.8 billion and equity outflows of RM0.4 billion.
Malaysia's foreign portfolio inflows tapered off to RM2.9 billion in the first half of the year, from RM20.3 billion inflows in the same period of last year.
"Recession and stagflation risks are now top concerns for investors, spurring risk aversion globally.
"This is brought by the ongoing geopolitical tensions, tighter monetary conditions, high inflation, China's Covid control strategy, and ongoing supply chain disruptions which will continue to influence flows dynamics in EMs in the coming months," they said.
Malaysia will not be spared amid the diminishing yield advantage as its interest rate differentials with the US are expected to turn negative soon.
They noted the ringgit was also moving closer to the weakest level since March 23, 2020 as growing fears of rising US interest rates and a global recession send investors scurrying to the safety of the dollar.
"The ringgit closed at 4.4245 against the US dollar yesterday (July 11), weakening by 5.8 per cent year-to-date.
"It is also heading for the seventh consecutive month of depreciation," they said.
Source: https://www.nst.com.my/business/2022/07/812675/malaysias-biggest-monthly-outflow-march-2020