Written by John Guzman

Malaysian bonds and equities are on an upward movement due to inflow of foreign funds into the country. Foreign investors are bullish on the country’s economic fundamentals. The local currency rose 1.25% in the past few weeks against the US dollar and is the second best performing currency in the region after Indonesia’s rupiah.

According to Bloomberg Businessweek, Malaysia’s five-year bonds rose, driving the yield to a six-week low, as global funds added to their holdings of the nation’s debt amid a rally in the ringgit. Overseas investors purchased MYR 10.2 billion of sovereign notes in May, taking total ownership to MYR 150.2 billion. The number is the highest level in Bloomberg data since 2006. It followed a MYR 4.5 billion drop in April, the biggest since July 2013. The ringgit is rising on the speculation that Bank Negara Malaysia will increase interest rates, a move which is first since 2011. Consequently, investors are riding the speculation in the hopes to gain from their investments. The ringgit is having the biggest rally in three months. In contrast with US Treasuries’ 2.53% yield, Malaysia’s 10-year government notes offer a yield of 4.03%, according to a Malay Mail Online report.

Foreign funds are now flowing into the market in droves and equities are reaching high valuations. Local stock prices will be buoyant for some time. Foreign funds accounted MYR 50 million of the local equities ending in the week of July 4. According to The Star Online, The FBM KLCI hit an all-time high of 1,892.33 points on June 24 amid a wave of foreign-led buying since April. As of July 9, the index is at 1,891.16. In the first quarter, the local market saw an outflow of MYR 5.2 billion, a complete reverse of the present quarter, the report noted. An economist from HSBC Malaysia predicted that Bank Negara will increase the current rate of 3% to 3.5% before the year’s end. The country’s economic fundamentals and current account surplus remain positive and the country is a crude oil exporter, so it is not very much affected by oil price volatility due to the crisis in the Middle East.

In a separate development, CIMB Thai completes a MYR 400 million bond issue. CIMB Thai, which is part of Malaysia’s CIMB Group, completed on July 7 the said issuance which is counted as tier-2 capital, according to the Basel III standards. According to The Nation, A myriad investors comprising insurance companies (25%), assets managers (39%), private banking accounts (33%) and banks (3%) participated in this landmark transaction. The transaction was considered a milestone despite the crisis in Thailand and shows Malaysian investors in the potential of Thailand to recover from turmoil, the report noted. This also shows the maturity of ringgit to be the base currency of a bond issue of an offshore bank.

At present, Malaysian bond and equities market will be buoyed by foreign funds on the back of positive economic fundamentals. The local currency might as well continue its gain against the US dollar throughout the rest of the year, pending increase on interest rates.

USD 1.00 = MYR 3.18 (XE.com 2014-07-19 06:08 UTC)

–Edited by Kristine Diaz

By Ray