Malaysia: Portfolio outflows in more than 2-year highs – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest portfolio results in Malaysia.

Key Takeaways

“Malaysia faced large foreign portfolio outflows of MYR5.4bn in Jun, reversing the inflows of MYR0.7bn in May. It was the biggest non-resident portfolio outflows since Mar 2020, triggered by outflows in both Malaysian debt securities (at MYR4.1bn) and equities (at MYR1.3bn) last month. This was in line with emerging markets’ (EMs) capital outflows that were weighed by lingering geopolitical risks, tighter global monetary conditions and surging inflation.”

“Bank Negara Malaysia (BNM)’s foreign reserves dropped the most in nearly seven years by USD3.8bn m/m to USD109.0bn as at end-Jun (end-May: +0.4bn m/m to USD112.8bn), marking the lowest level since Mar 2021. The latest reserves level has taken into account the quarterly foreign exchange revaluation changes. The reserves position is sufficient to finance 5.8 months of imports of goods & services and is 1.1 times total short-term external debt.”

“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 including Malaysia in the coming months. Growing fears of rising US interest rates and a global recession may also send investors scurrying to the safety of the dollar and in turn further putting depreciation pressure on Asian currencies including MYR in the near term.”