Bank Negara’s foreign reserve levels for June had taken into account the quarterly foreign-exchange revaluation changes, being sufficient to finance 5.4 months of imports of goods and services
PETALING JAYA: UOB Global Economics & Markets Research is maintaining its view that the capital flows into emerging markets, including Malaysia, will continue to see a bumpy path due to several persistent macroeconomic factors.
It said uncertainties remain surrounding the US Federal Reserve (Fed) rate path, geopolitical tensions between Russia and Ukraine as well as in the Middle East and China’s economic recovery pace, on top of industrial policies particularly when the US presidential election is getting closer.
Notably for Malaysia, the economics research team observed that the country’s foreign portfolio flows reversed course and fell back into the red again in June with a total outflow of RM700mil.
It attributed the net outflow to selling pressures across both Malaysian debt securities and equity markets, although it noted foreign portfolio flows continued to record a cumulative inflow of RM5.5bil in the second quarter of 2024 (2Q24) compared to a net outflow of approximately the same amount in the preceding three months.
“June’s non-resident debt outflows were mainly driven by foreign selling of Malaysian government securities and private debt securities including private sukuk, which outpaced a continued increase in holdings of government investment issues,” said UOB in a note to clients published yesterday.
Notwithstanding a reversal in foreign portfolio flows last month, it reported that Bank Negara’s foreign reserves rose for the second straight month by US$200mil on a monthly basis to US$113.8bil as at the end of June
Additionally, it said: “This reflects persistent trade surplus and investment inflows in the month. It also resulted in a cumulative increase of US$300mil in foreign reserves for the past six months of 2024.”
UOB revealed that Bank Negara’s foreign reserve levels for June had taken into account the quarterly foreign-exchange revaluation changes, being sufficient to finance 5.4 months of imports of goods and services, before commenting that the import coverage ratio is comfortably above the generally-accepted adequacy threshold of three months.
“Also noteworthy is that government-linked investment companies have US$110bil to US$120bil invested abroad which could generate US$6bil to US$7bil of annual income that can be repatriated or converted to support the ringgit and buffer domestic market flows,” it added.
Furthermore, it said Malaysian corporates have US$190bil of liquid foreign currency assets that can be utilised to meet foreign currency obligations.
Of interest, the research outfit is at this juncture projecting the local currency to recover at a measured pace to 4.65 against the dollar in 3Q24 and 4.60 in 4Q24.
