KUALA LUMPUR: Foreign holdings of local bonds fell by RM9.8 billion to RM180.1 billion in April, 2019, the lowest level recorded since March 2017, according to Malaysian Rating Corp Bhd (MARC).
In its monthly bond market and rating snapshot, the rating firm said foreign investors turned net sellers of local bonds after recording two subsequent months of inflows since February.
MARC said the knee-jerk reaction was due to concern that Malaysia might drop from the Norway’s US$1 trillion sovereign wealth fund and the FTSE World Government Bond Index’s (WGBI) bond holdings.
FTSE Russell had placed Malaysia on its watchlist to review Malaysian government bond participation in the WGBI.
Foreign ownership of local bonds fell 12.5 per cent of the total outstanding, as foreign investors have been reducing their holdings after the announcements made by Norway’s soveraign wealth fund and FTSE Russell’s WGBI on their plans to remove Malaysian bonds from their respective indices.
Year-to-date, MARC said the local bond market recorded total net outflow of RM4.7 billion compared to RM1.3 billion from January to April, 2018.
Meanwhile, the Malaysian Government Securities (MGS) Government Investment Issues (GII) contributed most of the outflows followed by corporate bonds and treasury bills.
MGS and GII recorded net outflows of RM7.1 billion in April with some of the outflows also contributed by the large volume of mature GII papers valued at RM10.0 billion.
MARC said both MGS and GII saw net outflows of RM3.5 billion each with their respective foreign ownership of total outstanding coming in at 37.8 per cent and 22.9 per cent, respectively.
Ringgit also continued to weaken against the US dollar in April, amid rising expectations that the Bank Negara Malaysia (BNM) would cut the overnight policy rate by 25 basis points in May against the backdrop of a possible growth slowdown.
MARC said the local note also suffered several knee-jerk reactions throughout the month, after being hit by several downbeat announcements causing an exodus of foreign funds in both local bond and equity markets.
This includes Norwegian sovereign wealth fund’s proposal to omit emerging market bonds from its fixed income benchmark, possible exclusion of Malaysia in FTSE Russell’s WGBI, and rising uncertainty on whether the government would intervene in curbing the ringgit’s fall.
By end-April, the ringgit depreciated against the greenback to settle at RM4.14 compared to RM4.08 in March, 2019.