KUALA LUMPUR – Malaysia registered foreign capital inflows of RM7.7 billion last month, marking the highest monthly net inflow since June last year and offsetting the declines in the two preceding months, said Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz.
Foreigners turned net buyers in the ringgit bond market with a total value of RM6.6 billion (RM3.6 billion in July), and Malaysian equities at RM1.1 billion (RM1.3 billion in July).
Malaysia has been registering net foreign capital inflows thanks to the positive progress of the National Recovery Plan (NRP), which has improved the overall public health situation and enabled the gradual reopening of economic sectors through the National Covid-19 Immunisation Programme. This set the tone for Malaysia’s stronger economic recovery in the fourth quarter (Q4) of 2021, the finance minister said.
Although Malaysia’s economic outlook has remained challenged by persistently elevated infection rates, positive progress on vaccination and controlling critical Covid-19 cases are expected to spur growth.
Further, several states have shifted to Phases 2 and 3 of the NRP. This includes the Klang Valley and Putrajaya, which transitioned to Phase 2 yesterday, predicating a wider reopening of economic sectors for the nation’s most populous states.
“These improved growth prospects have restored investors’ confidence in Malaysia’s capital market,” Tengku Zafrul said.
August marked the first month of net foreign buying of Malaysian equities since June 2019, with foreign net selling showing clear signs of tapering. Malaysia’s local benchmark index, the FBM KLCI, which fell as much as 5.7% year-to-date, managed to recover 50% of its losses over the last fortnight.
This is a testament to investors and fund managers’ confidence in the nation’s economic growth prospects, as well as continuity of policies. Attractive valuations relative to other markets within the region have also been a major draw for foreign fund inflows, he said.
In terms of the ringgit bond market, foreign inflows last month were mainly in Malaysian Government Securities (MGS) valued at RM3.1 billion (-RM3.6 billion from July), and Malaysian Government Investment Issues (MGII) at RM3.2 billion (up RM425 million from July). The corporate bond market segment also saw higher net foreign inflows, valued at RM267 million (up RM62 million from July).
As of end-August, foreign holdings of Malaysian government bonds rose by RM23.9 billion to RM226.1 billion, comprising RM191.7 billion or 40.3% of total MGS; and RM34.4 billion or 8.6% of total MGII.
As of June, more than 50% of the foreign holdings of Malaysian government bonds comprised long-term investors. This included other central banks and governments (32.4%); pension funds (18.4%); and insurance companies (2.2%).
The outlook for Q4 seems brighter as rapid vaccination rates enable the reopening of more economic sectors. This will boost the prospects for improved consumption from households and businesses’ pent-up demand, Tengku Zafrul said.
But the outlook for Q3 may be challenging due to the prolonged Phase 1 in several states such as Selangor, which are significant contributors to the nation’s gross domestic product.
Other factors underpinning Malaysia’s growth prospects include stronger external demand (for products such as electrical and electronics, and hydrocarbons); an increase in commodity prices; and continued investment in large-scale infrastructure projects with high multiplier impact. – Bernama, September 11, 2021