KUALA LUMPUR: Malaysia's debt sales sales could make a comeback amid economic reopening optimism, said Kenanga Research.
The firm said the US 10-year Treasury average yield had inched slightly higher by two basis points (bps) to 0.66 per cent in May, lifted by investors' optimism as economies begin to reopen.
On the other hand, the 10-year Malaysian Government Securities (MGS) average yield fell sharply by 31 bps to 2.82 per cent in April, narrowing the average yield spread to 216 bps.
Kenanga Research said the implementation of the Recovery Movement Control Order from June 10 to August 31, coupled with Malaysia's RM295 billion total fiscal package, was expected to gradually help revive the domestic economy and restore investors' confidence, attracting more foreign funds into the economy.
The firm ,however, expects the ringgit to remain under pressure due to worsening US-China relations, fears of a second Covid-19 wave, oil price volatility and domestic political issues.
Kenanga Research maintained its ringgit forecast at 4.30 against US dollar by the year-end.
The firm expects Bank Negara Malaysia to embark on another 25 basis points cut in its key interest rate to 1.75 per cent in July as the economic and market disruptions caused by the Covid-19 pandemic were likely to linger even as Malaysia gradually recovers.
Meanwhile, foreign investors turned net buyers of Malaysia's debt in May of RM1.5 billion, after three months of net selling.
Kenanga Research said total foreign holdings of Malaysia's debt securities reached a two-month high of RM187.3 billion but its share to total national debt remained at 12.2 per cent.
"Following the gradual re-opening of economic activities, risk-on factor and vaccine hopes, Malaysia debt securities markets benefitted as the appeal for carry trade strategy increases, luring global funds back into higher-yielding bonds," it said in a note today.
Kenanga Research said the month's inflow was driven by a net rise in purchase of MGS, offsetting the fall in Malaysian Government Investment Issues (GII) and Private Debt Securities (PDS).
MGS' foreign holdings edged up slightly to 35.9 per cent from April's 35.8 per cent, GII eased to 5.2 per cent from 5.3 per cent — a seven-month low, while foreign shareholding in PDS was sustained at 1.8 per cent for seven consecutive months.
Kenanga Reseacrh said for the equity market, foreign investors remained as net sellers for 11th straight months.
In May, foreign selling on Bursa Malaysia increased to -RM3.5 billion from -RM2.7 billion in April. Year to date, net foreign equity outflow stood at RM13.8 billion.
"Foreign selling on Bursa increased in May, the biggest outflow in two months as investors remained cautious despite Malaysia's progressive development in managing the Covid-19 pandemic," it said.
Overall, total outflow of foreign funds from the capital market ebbed to -RM2.0 billion in May from -RM4.4 billion in April.