Malaysia’s total external reserves surged US$2.2 billion to US$110.0 billion at mid-April 2018, the highest since end of February 2015. Picture by REUTERS.

KUALA LUMPUR: Malaysia’s total external reserves surged US$2.2 billion to US$110.0 billion at mid-April 2018, the highest since end of February 2015, underpinned by capital, trade and corporate flows.

Maybank IB Research said the latest tally is equivalent 7.7 months of retained imports and 1.1 times of short-term external debt.

“Trade flows remain supportive of external reserves via the repatriation of export earnings. Trade surplus between January and February 2018 increased RM18.7 billion from RM13.5 billion in the same period 2017,” it said.

The research firm said Malaysia’s external reserve is expected to continue on its uptrend this year on sustained trade surplus amid the volatility in portfolio capital flows.

“We anticipate the trade surplus to be sustained at RM103.8 billion or US$27.2 billion this year from RM97.2 billion; US22.6 billion in 2017.”

Maybank IB said the surge in external reserves also reflected corporate inflows, possibly from the oil and gas sector, taking cue from the Petronas-Saudi Aramco deal involving the latter’s US$7 billion purchase of stake in the Refinery and Petrochemical Integrated Development project.

On the portfolio capital inflows, the research house noted foreigners were net buyers of Malaysian equities during April 1-19 period totalling and additional of RM1.2 billion, pushing the FBM KLCI to record close of 1,895.18 points on April 19, 2018.

“Net foreign buying in the equity market was among others spurred by expectations of “status quo” outcome in the upcoming 14th General Election on May 9, 2018 as well as positive impact to the economy and ringgit from the rise in crude oil price, which reached US$73.71 per barrel on April 20, 2018.”

Meanwhile, the research firm said it did not expect big swings in foreign inflows in the bond market for April 2018 after an increase of RM2.9 billion net buy in March 2018.

Despite the strong rise in external reserves, ringgit movement against US dollar was rather “flattish” or “sideways” in recent months after the earlier gains on April 20, 2018 at RM3.8945/US1.

“This suggests possible foreign exchange market intervention by Bank Negara Malaysia to prevent excessive ringgit strengthening or volatility. For example, buying of US dollar also contributes to the rise in external reserves.”