UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviews the latest results from foreign portfolio inflows into the Malaysian economy.

Key Takeaways

“Foreign investors’ interest in Malaysian assets remained strong with non-resident portfolio inflows into the country reaching a six-month high at MYR5.9bn in Feb (Jan: +MYR3.8bn). Both Malaysian debt and equity markets witnessed net foreign purchases of MYR3.1bn and MYR2.8bn respectively last month (Jan: +MYR3.5bn and +MYR0.3bn).”

“Bank Negara Malaysia’s (BNM) foreign reserves fell for the second straight month by USD0.3bn m/m to a five-month low of USD115.8bn as at end-Feb (end-Jan: -USD0.8bn m/m to USD116.1bn). It is sufficient to finance 6.1 months of imports of goods and services, a new reserves adequacy indicator effective from 22 Feb 2022, and is 1.2 times total short-term external debt.”

“At present, risk-off sentiment and sky-rocketing commodity prices sparked by Russia-Ukraine tensions and sanctions are initiating some asset reallocation into commodity producing countries including Malaysia. However, expectations of narrower interest rate differentials, domestic policy uncertainty, constrained fiscal policy space, and increasing downside risks to domestic growth prospects are wildcards for Malaysia’s foreign portfolio flows and currency outlook, should geopolitical risks escalate further.”