Malaysia Draws Debt Funds in November as Ringgit Recovers Ground

  • Government, corporate Islamic bond holdings climb to records
  • Inflows may help offset outflows from Malaysian stocks

Investor sentiment for Malaysian debt improved in November as global funds raised holdings to a seven-month high, aided by a recovery in the ringgit.

Ownership of sovereign and corporate notes rose 1.9 percent from a month earlier to 213.6 billion ringgit ($50 billion), the highest since April, with the most pronounced increases seen in the Islamic bond component, according to the latest central bank data. The ringgit extended a rally in November from October, after weakening in the previous five months as depressed Brent crude prices weighed on government earnings for Asia’s only major net oil exporter.

The ringgit’s rebound this quarter bodes well for the local fixed-income market when overseas investors are pulling funds from Malaysian stocks due to a pending U.S. interest-rate increase. The debt inflows may come as a welcome respite for Prime Minister Najib Razak, who flagged in his 2016 budget in October a possible 30 billion ringgit drop in oil-related revenue. He’s counting on a new 6 percent goods and services tax introduced in April to take up the slack.

“Foreign funds are in the market to build up their portfolio after selling out in the early part of the year,” said Nik Mukharriz Muhammad, a Kuala Lumpur-based fixed-income analyst at the investment-banking unit of CIMB Group Holdings Bhd., Malaysia’s second-biggest lender by assets. “They have been buying in recent months because of the strengthening ringgit.”

Malaysia’s currency has appreciated 3.2 percent this quarter, the second-best performance in Southeast Asia after the Indonesian rupiah. It’s still down 18 percent this year, the worst in the region, prompting global funds to offload a net 18.5 billion ringgit of shares versus the 6.9 billion ringgit in 2014, according to MIDF Amanah Investment Bank.

In November, overseas investors raised holdings of Malaysian conventional government debt to 187.2 billion ringgit, the most since June, and increased ownership in the Islamic segment by 15 percent to a record 11.7 billion ringgit, the central bank data show.

For the corporate sector, they boosted holdings to 13.3 billion ringgit, of which 5.7 billion ringgit was sukuk, another unprecedented high.

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