PETALING JAYA: Persistently high Covid-19 caseloads and political uncertainties continued to erode foreign interest in Malaysian Government Securities (MGS) and Government Investment Issues (GII) in July, with net foreign pullout accelerated sharply to RM3.6 billion (RM497.1 million in June), much of it from MGS and GII (RM3.2 billion).
RAM Ratings said such subdued foreign participation is expected to continue into August, given the political strife that culminated in the resignation of the sitting government on Aug 16.
“Although a new prime minister was subsequently appointed on Aug 22, 2021, uncertainties may linger on until a confidence vote is tabled in the Parliament. As such, foreign participation will likely remain soft in the immediate term,” it said in a statement on Tuesday.
Once these uncertainties clear up, RAM said, the positive yield differentials over US Treasuries (averaging around 195bps for 10-year MGS in August) should support demand for MGS/GII.
“However, demand for longer tenures will be limited by the repositioning of global funds to avoid duration risks in anticipation of policy rate normalisation by the US Federal Reserve and European Central Bank. Ramped-up vaccinations, leading to a more tangible path of economic recovery in Q4 2021 and 2022, should also help buoy sentiments for Malaysian securities later in the year.”