Malaysia’s foreign portfolio inflows in May strongest in 10 months

KUALA LUMPUR: Malaysia’s foreign portfolio inflows of RM7bil in May was the largest in 10 months, with the inflows witnessed across equity and debt instruments except for private sukuk.

Calling it a “strong rebound”, UOB Global Economics & Markets Research said Malaysia’s inflow in May was the highest since July 2023 and had well surpassed April 2024’s outflow of RM800mil.

Inflows into equities saw a strong turnaround at RM1.5bil in May, while debt securities flows surged to RM5.5bil.

“This helped to turn the cumulative foreign portfolio (equities and bonds) flows into black for the first time this year, at RM700mil in Jan-May 2024,” the research house said in a statement on Tuesday.

Going forward, UOB Global Economics & Markets Research continues to expect a bumpy path for capital flows into the emerging markets including Malaysia.

“This is premised on the uncertain start to the US Federal Reserves’ rate cut cycle, lingering geopolitical risks, increasing trade protectionisms and rising concerns about domestic policy reforms.

“Relatedly, the ringgit will remain subject to volatility despite the ongoing coordinated measures conducted by the authorities.

“Bank Negara estimated that there is US$6bil to US$7bil of potential annual income to be converted to help offset (any) negative outflows and to be an active stabilizer for the ringgit.

“A stronger correlation to the Chinese yuan would also turn into a tailwind for the ringgit as the yuan is widely expected to rebound in the second half of 2024.”

The research house projects the US dollar-ringgit exchange rate to recover at a measured pace to 4.65 in the third quarter of 2024 (3Q24) and 4.60 in 4Q24, from June 10’s closing of 4.7230.