Foreign Reserves Rose to Highest Level in Nearly 7 Years

Foreigners bought bonds and equities in the month of August

92
Special Drawing Rights (SDRs) to Malaysia by the IMF

Malaysia’s overall foreign portfolio flows rose by RM7.7bn in August, which more than offset declines in two preceding months (Jul: -RM5.0bn, Jun: -RM1.7bn). Foreigners turned net buyers of domestic debt securities (+RM6.6bn) and equities (+RM1.1bn). This marked the first month of net buying of equities since Jun 2019.

Bank Negara Malaysia’s (BNM) foreign reserves rose by USD5.2bn m/m to USD116.3bn at end-Aug, marking the highest level of reserves in nearly 7 years. The higher reserves reflect an additional allocation of Special Drawing Rights (SDRs) to Malaysia by the IMF. The latest reserves position is sufficient to finance 8.3 months of retained imports and is 1.3 times total short-term external debt.

Higher foreign flows into Malaysia last month follows abating domestic political risk after the appointment of a new Prime Minister, and further progression in vaccination rates that paves the way for further economic recovery. The Ringgit Malaysia gained momentum against the USD to 4.15 at the time of writing. The next key event to watch is BNM’s monetary policy decision today (9th September). Bloomberg consensuses (including us) expect BNM to keep the Overnight Policy Rate (OPR) on hold at 1.75%.

Meanwhile, the year to date (YTD), foreign holdings of Malaysian government bonds (MGS & GII) rose by RM23.9bn to RM226.1bn as at end-Aug, which was equivalent to 25.2% of total outstanding. For MGS, foreign investors held RM191.7bn or 40.3% of total MGS outstanding as of end-Aug while foreign holdings of GII accumulated to RM34.4bn or 8.6% of total GII outstanding. Foreign ownership of Malaysian equities was unchanged at 20.2% of market capitalisation.