Malaysia Foreign Inflows/Outflows up to October 2023

Malaysia reported a net foreign outflow of RM4.9 billion in bonds and equities in October 2023, marking the third consecutive month of continuous foreign fund outflow from the country. This is according to UOB Global Economics & Markets Research. Larger foreign portfolio outflows in October exacerbated the ringgit weakness, which fell 1.6% against the US dollar to 4.766 as at end-October. Net foreign selling of Malaysian debt securities and equities amounted to RM2.6 billion and RM2.3 billion respectively.

Meanwhile, foreign holdings of government bonds came down to RM250.3 billion, or 22.6% of total bonds outstanding. Net outflow was RM3.8 billion in September 2023 and RM4.9 billion in August 2023.

However, year to date, cumulative foreign funds remain at a net inflow of RM16.1 billion, mainly in Malaysian debt securities (RM20.4 billion) which was offset by equities (RM4.2 billion). For the January-October 2022 period, a net outflow of RM1.9 billion was recorded.

On the equities front, foreigners turned net sellers of Malaysian equities at RM2.3 billion in October, following three months of net buying worth RM2.2 billion in July to September.

Meanwhile, Bank Negara Malaysia’s foreign reserves also fell to a 12-month low after it dropped US$1.6 billion (RM7.49 billion) month on month to US$108.5 billion as at end-October 2023. This was the third straight month of decline in foreign reserves.

The next Federal Open Market Committee (FOMC) meeting on Dec 12-13 will come with an updated summary of Fed economic projections, which could provide clues on the Fed’s stance in 2024.

The key point to observe is in terms of real interest rates (nominal minus inflation) in the U.S. and Malaysia. On this basis, the U.S. is still more attractive than Malaysia. If we move our OPR to 3.5%, we could neutralise this effect and strengthen the exchange rate and reduce imported inflation, especially on food items. But this will be unpopular with businesses and home owners.

Reference:

Malaysia Sees RM13.6 Bil Net Foreign Outflow in Aug-Oct; YTD RM16.1 Bil Net Inflow,

Sulhi Khalid, theedgemalaysia.com, 9 November 2023