UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the publication of foreign portfolio data in Malaysia.

Key Takeaways

“Malaysia continued to draw foreign portfolio inflows for a fourth straight month in Apr (totaling MYR1.2bn vs MYR5.3bn in Mar) despite lingering concerns about global banking sector turmoil, US debt ceiling, and dimmer growth prospects. It marked the longest streak of foreign portfolio inflows since Oct 2020, solely driven by persistent foreign purchases of Malaysian debt securities (+MYR1.5bn vs +MYR6.6bn in Mar) as the equity space still faced foreign selling pressures (-MYR0.3bn vs –MYR1.3bn in Mar).”

“Bank Negara Malaysia (BNM)’s foreign reserves reversed course and erased almost all of its gains recorded in the preceding month (end-Apr: -USD1.09bn m/m to USD114.4bn vs end-Mar: +USD1.17bn m/m to USD115.5bn), partly reflecting smaller foreign portfolio inflows and slower external trade flows amid a weaker currency in the month. The reserves position is sufficient to finance 5.1 months of imports of goods & services and is 1.0 time of total short-term external debt. BNM’s net short position in FX swaps widened by USD0.5bn m/m to a fresh high of USD26.7bn (equivalent to 23.1% of FX reserves) as at end-Mar.”

“Moving into 2H23, we continue to expect volatile capital flows into emerging markets (EMs) including Malaysia as investors remain wary of any further upheaval in the US financial system, potential US debt default, deteriorating global growth outlook, and geopolitical risks emanating from upcoming elections for a handful of EMs. That said, still strong fundamental factors (i.e. decent economic growth and manageable inflationary pressures) and expectations of broad dollar weakness will remain the core drivers of foreign portfolio flows to EMs and Asian FX movement in the near term.”