KUALA LUMPUR: Foreign outflows from the country’s capital market are expected to persist in the near term amid COVID-19 pressure, according to Kenanga Research.
In its note today, the research house said there are elevated fears that COVID-19 would become a pandemic and drag the global economy into a recession.
Overall, the capital market recorded the largest net outflow of foreign funds in 10 months of RM10.1 bil after a sustained inflow for three consecutive months.
In January 2020, inflow stood at RM3.4 bil, while December 2019 and November 2019 registered an inflow of RM6.9 bil and RM6.6 bil respectively.
“Besides, the lack of political stability in Malaysia reaffirmed investors’ risk-off mode.
“Nevertheless, it would remain in check given an increasingly dovish stance adopted by the US Federal Reserve (a surprise 50 basis points cut on Feb 3) and other regional central banks given the increasingly weaker growth outlook as a result of the COVID-19 epidemic,” it said.
Kenanga Research said these factors will exert pressure on the ringgit to move in the range of 4.16 – 4.24 against the US dollar.
It expects the local unit to end 2020 at 4.20 compared to RM4.09 in 2019.
The research house said the US 10-year Treasury note average yield dropped to 1.45% in February, a 27 basis point decline.
In a similar trend, the benchmark 10-year Malaysia Government Securities (MGS) average yield edged down by 30 basis points to 2.92%, narrowing the average yield spread to 147 basis points from 150 basis points in January.
It said the foreign holdings share of total MGS edged down to a four-month low of 39.6% in February.
Overall, the share of total foreign holdings of Malaysia’s debt was reduced to 13.2% from 13.9% in January after it rallied to a 15-month high last month.
In the equities market, foreign outflow stood at RM2 bil, the biggest in six months.
“Despite recent rate cuts and the fiscal stimulus package, the growth outlook remains grim and uncertain on continued slowing global trade momentum and the impact of COVID-19.
“Hence, we may not be surprised that Bank Negara Malaysia may embark on another 25 basis points cut to 2.25% at its May Monetary Policy Committee meeting,” it added. – March 9, 2020, Bernama
