Foreign portfolio inflows into the Malaysian economy rose to the highest level since 2012 in December, noted UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting.

Key Takeaways

“Malaysia’s foreign portfolio flows turned positive in Dec 2021 (at MYR5.0bn; Nov: -MYR3.4bn), mainly due to a rebound of debt inflows (at MYR6.1bn; Nov: -MYR3.6bn) while foreign flows into equities turned negative. This brought the full-year foreign portfolio inflows to MYR30.4bn in 2021 (2020: -MYR6.3bn), with debt inflows totalling MYR33.6bn and equity outflows amouting to MYR3.2bn. This marks the highest foreign portfolio inflows since 2012.”

“Bank Negara Malaysia’s (BNM) foreign reserves jumped for the third month by USD0.2bn m/m to close the year 2021 at USD116.9bn, marking the highest level since Nov 2014. It is sufficient to finance 7.7 months of retained imports and is 1.2 times total short-term external debt.”

“Going forward, overtly hawkish US Fed and emerging new COVID-19 variants are top risk factors exacerbating volatility in emerging markets’ (EMs) capital flows including Malaysia. Domestically, rising debt level and policy uncertainty could weigh on Malaysia’s capital flows and currency outlook. We expect further USD strength with USD/MYR projected at 4.30 by end-2022.”