KUALA LUMPUR, Aug 7 — The Malaysian ringgit’s recent upswing is drawing global investors to local bonds, significantly benefiting the currency and boosting its performance in emerging markets this quarter.
According to Bloomberg, foreign investors injected RM5.5 billion into Malaysian bonds last month, marking the largest monthly inflow in a year, according to Bank Negara Malaysia data.
This surge has propelled total returns on ringgit-denominated bonds to 5.9 per cent this year, placing it among the top performers in emerging markets, the report added
“Expectations of continued ringgit strength have spurred foreign bond investments, likely on an unhedged foreign exchange basis to capitalize on currency gains, creating a positive feedback loop,” Winson Phoon, head of fixed income research at Maybank Securities in Singapore, was quoted as saying.
“The alignment of favourable factors has set the stage for the ringgit and local bonds.”
Bloomberg added that the growing optimism towards the ringgit reflects investor confidence in Malaysia’s improving economic outlook.
The currency has appreciated by 5.5 per cent against the dollar this quarter, and anticipated US interest rate cuts may further boost foreign investment in Malaysian bonds.
The influx into Malaysian debt is partly due to light foreign positioning ahead of a potential shift in US Federal Reserve policy. Over the past year, global bond purchases have remained 0.6 standard deviations below the five-year average.
Maybank projects the 10-year Malaysian government bond yield to fall to 3.5 per cent by mid-2025, as the central bank is expected to maintain the overnight policy rate at 3 per cent through next year.
This forecast is supported by decreasing inflation risks and strong domestic growth prospects. The 10-year benchmark bond was trading around 3.75 per cent today.
Investors will be closely watching for the timing and extent of potential subsidy cuts on widely used gasoline, which could impact consumer prices.
CIMB strategists, including Michelle Chia, recommend positioning for a ringgit-dollar exchange rate below their fair value target of 4.30, driven by an export recovery, unwinding of dollar longs, and potential for increased foreign bond and stock inflows.