Foreign investors chartered 'surprise return' in August, turned net buyers — RAM

TheEdge Wed, Sep 15, 2021 03:38pm - 1 week ago View Original

KUALA LUMPUR (Sept 15): Foreign investors chartered a surprise return in August despite heightened political uncertainties in Malaysia, RAM Ratings said today.

RAM in a statement noted that the bond market registered a robust net foreign inflow of RM6.6 billion (July: outflow of RM3.6 billion), mainly driven by Malaysian government securities (MGS) and government investment issues (RM6.2 billion).

According to RAM, August's foreign inflow was largely concentrated in the second half of the month, coinciding with the appointment of the ninth prime minister on Aug 22.

"The market may have taken comfort in the swift resolution of the political quagmire, as the 10-year MGS yield fell four basis points while the ringgit appreciated sharply against the US dollar from 4.24 to 4.17 towards the end of August," it said.

RAM said the present favourable yield spread of MGS over US Treasury (around 190 to 200 basis points) should continue to drive foreign interest in the near term.

"Over the longer horizon, however, the monetary policy stance by central banks of developed markets remains a key driver of fund flows," it said.

"At the Jackson Hole Economic Symposium on Aug 27, the US Fed (Federal Reserve) chair reiterated that the central bank was in no hurry to raise rates. The upcoming Federal Open Market Committee meeting from Sept 21 to 22, when the Fed will release its latest 'dot-plot' projections, is a crucial market watch on future rate direction," it added.

It also noted that the European Central Bank on Sept 9 decided to moderately reduce the pace of its asset purchase programme in the fourth quarter of 2021, insisting however that its action did not amount to tapering.

"All said, rate hikes may likely still be some way off, although markets may price in these expectations sooner," opined RAM.

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