Malaysia: Foreign Portfolio rose to multi-year highs – UOB

Foreign investors continued to favour Malaysian portfolio investment assets in Jul, bringing in an overall inflow of MYR12.7bn (Jun: +MYR3.9bn). This marked the largest monthly foreign portfolio inflows since Mar 2016 and the seventh straight month of net foreign purchases, the longest buying streak since late 2020. It was driven by non-resident inflows into both Malaysian debt securities (Jul: +MYR11.3bn, Jun: +MYR5.2bn) and equities (Jul: +MYR1.4bn, Jun: MYR1.3bn) in the month.  

Partly underpinned by the substantial foreign portfolio inflows, Bank Negara Malaysia (BNM)’s foreign reserves rebounded for the first time in four months, by USD1.5bn m/m to USD112.9bn as at end-Jul (end-Jun: -USD1.3bn m/m to USD111.4bn). The latest reserves position is sufficient to finance 5.1 months of imports of goods & services and is 1.1 times the total short-term external debt. BNM’s net short position in FX swaps widened for two months by USD0.4bn m/m to USD24.1bn as at end-Jun (end-May: +USD0.1bn m/m to USD23.7bn).

Going forward, capital flows into Malaysia are expected to remain volatile due to the continued market pricing of the endgame of tightening cycle by global central bankers amid renewed upsides risks to the inflation outlook and ongoing geopolitical tensions. A slower-than-anticipated economic recovery in China alongside a prolonged period of restrictive monetary policy across developed markets in particular suggest a more challenging global growth prospects for 2H23 and beyond, implying more cautious risk sentiment ahead.