KUALA LUMPUR: Foreign portfolio inflows in Malaysia continued for the fifth consecutive month in May, reaching RM2.2 billion, up from RM1.3 billion in April, according to UOB.

UOB economists Julia Goh and Loke Siew Ting said the increase was solely driven by net foreign purchases of Malaysian debt securities, totaling RM3.0 billion compared to RM1.5 billion in April. 

However, they said the equity space faced ongoing foreign selling pressures for the ninth consecutive month, with net foreign selling amounting to RM800 million, compared to net selling of RM300 million in April.

"This resulted in foreign portfolio inflows for the first five months of 2023 (January to May) rising to RM13.0 billion, surpassing the RM8.3 billion recorded in the same period of 2022," they said in a report today.

Bank Negara Malaysia reported a decline in foreign reserves by US$1.7 billion month-on-month to US$112.7 billion as of the end of May. 

The economists noted that the decline was largely attributed to the weakening ringgit during the month. 

"The current reserve position is sufficient to cover 4.8 months of imports of goods and services, marking the lowest level since the inclusion of the services component in February 2022. 

"It also represents 1.0 times the total short-term external debt. Bank Negara's net short position in foreign exchange swaps narrowed by US$3.1 billion month-on-month to US$23.6 billion as of the end of April," it said. 

Looking ahead, the economists view that Malaysia, along with other emerging markets, may continue to face challenges in attracting capital flows. 

"This is mainly premised on weaker-than expected China economic data releases in recent months, implying a softer economic recovery path; renewed expectations of a Fed rate hike by Jul and lower bets on a Fed rate cut in the second half of 2023; as well as uncertainty surrounding Malaysia's six state elections amid ongoing geopolitical risks," they said.

https://www.nst.com.my/business/2023/06/918350/malaysias-foreign-debt-inflows-cushioned-equity-outflows-may-uob