Volatility in the Malaysian market is high - foreign money leaves the country
Amid Covid-19 uncertainty and expectations of a QE cut in the US, Malaysia's capital market is exposed further by growing political instability in the country, triggered by the Prime Minister's resignation this week.
During July, foreign investors have reduced their investments in debt securities of Malaysia by maximum since March 2020, selling bonds of $862mln in July and $120mln in June 2021.
Quotations of medium-term and long-term government securities came under pressure from foreign outflows. The yield on Malaysia's 10-year government securities (MGS) is currently hovering at 3.24%, compared to 3.5% in mid-March 2021 and 2.65% at the end of 2020.
By comparison, the yield on Indonesia's traditionally more risky government debt fell nearly 30 bp in this quarter - up to 6.33%. As a result, the difference between the yield on 10Y sovereign bonds of Malaysia and Indonesia has narrowed to the minimum in the last 3 years.
Uncertainties about the future direction of the country's policy also do not satisfy international credit agencies. S&P Global Ratings lowered its forecast for economic growth in Malaysia in 2021 to 3.2% from 4.1% earlier, Fitch Solutions - to 0% from 4.9% Moody's Investor Service warned of a potential downgrade in Malaysia's credit rating if the government fails to reverse the sustained growth in its budget deficit.
Full nameMinistry of Finance Malaysia