Highlights of the report as follow:-
· Foreign holdings of total local debt fell by RM26.2bil to RM178.2bil – the sharpest decline on record which translates into 15.0% of total debt outstanding in March. The biggest drop came from foreign MGS holdings, down by RM23.0bil to RM135.9bil in March, translating to 38.5%, which is the lowest level since December 2011 when it was 36.99%.
· Also the foreign holdings of MGII as a percentage of its total outstanding fell to a one-year low of 7.9% to RM19.8bil in March 2017. Meanwhile, there was an increase in foreign holdings of corporate bonds as a percentage of total outstanding corporate bonds. It gained by 3.0% to RM15.9bil in March.
· We expect there will still be some selling pressure from the foreign holdings in the near term. Part of the reason could be due to an increasing appetite on local equities where the net inflow of foreign funds YTD amounted to RM6.65bil.
· The growing appetite towards equities could be due to: (1) migration from disinflation to reflation, implying room for potential interest rate hike; (2) cyclical upturn in corporate earnings revision on the back of a stable GDP growth of 4.5% in 2017; (3) still favourable underlying emerging market outlook supported by healthy growth and favourable yields; and (4) firmer commodity prices.