Malaysia: Foreign Portfolio inflows remained firm in May – UOB

Foreign portfolio inflows persisted for the fifth straight month in May with an increase to MYR2.2bn (from +MYR1.3bn in Apr). It was purely driven by net foreign purchases of Malaysian debt securities (at MYR3.0bn vs +MYR1.5bn in Apr) as equity space continued to face foreign selling pressures for the ninth consecutive month (at MYR0.8bn vs –MYR0.3bn in Apr). This brought year-todate (ytd) foreign portfolio inflows higher to MYR13.0bn in the first five months of 2023 (Jan-May 2022: +MYR8.3bn). 

Bank Negara Malaysia (BNM)’s foreign reserves fell further by a larger magnitude of USD1.7bn m/m to USD112.7bn as at end-May (end-Apr: -USD1.1bn m/m to USD114.4bn) amid a weaker MYR in the month. The latest reserve position is sufficient to finance 4.8 months of imports of goods & services, the lowest level since the inclusion of services component in Feb 2022, and is 1.0 time of total short-term external debt. BNM’s net short position in FX swaps narrowed the most since Mar 2019 by USD3.1bn m/m to USD23.6bn as at endApr (end-Mar: +USD0.5bn m/m to USD26.7bn). 

Going forward, we continue to see challenges for capital flows into emerging markets (EMs) including Malaysia. This is mainly premised on (i) weaker-thanexpected China economic data releases in recent months, implying a softer economic recovery path; (ii) renewed expectations of a Fed rate hike by Jul and lower bets on a Fed rate cut in 2H23; (iii) as well as uncertainty surrounding Malaysia’s six state elections amid ongoing geopolitical risks.