Sharp return of foreign funds, UOB warns volatility amid US policies uncertainty

New Straits Times

09-05-2025

KUALA LUMPUR: Foreign investors have made a sharp return to the Malaysian market as they turn net buyers of local instruments at RM8.3 billion in April from a net sell of RM1.4 billion in March.
But UOB said emerging markets, including Malaysia, are expected to face volatile capital flows amid continued uncertainty over the Trump administration's tariff policies and trade negotiations.
UOB said investors are likely to stay selective across asset classes, factoring in country-specific elements such as trade exposure and how economies adapt to the evolving global tariff landscape, with US policy shifts and the performance of the US dollar remaining key influences.
"Given fluid global conditions, capital flows will reset as and when an individual country's fundamentals are impacted by new developments, particularly on its real rates and policy differentials," it said today.
According to UOB, Malaysia is among the 18 nations that have so far successfully conducted meetings with the US government regarding tariff-related matters.
US Treasury Secretary Scott Bessent informed House lawmakers on Tuesday that the US is engaged in discussions with 17 of its 18 key trading partners, with China being the only exception.
Meanwhile, UOB said the return of foreign portfolio inflows last month was solely driven by strong purchases of Malaysian debt securities at RM10.2 billion.
Foreign investors still sold Malaysian equities for the seventh consecutive month at RM1.9 billion.
This came as global market sentiment recovered after US President Donald Trump suspended his reciprocal tariffs for 90 days on April 9 and toned down his criticism on the US Federal Reserve chair during the month.
"It was more than enough to offset persistent foreign selling of Malaysian equities for the seventh straight month in April, albeit moderately at RM1.9 billion," it said.
Foreign investors ramped up their purchases of Malaysian Government Securities (MGS) in April by RM9.1 billion, the strongest monthly increase since May 2014, compared to just RM1.7 billion in March.
In contrast, other debt instruments saw only modest foreign interest, with Government Investment Issues (GII) attracting RM0.6 billion, Malaysia Treasury Bills (including Islamic T-bills) at RM0.5 billion, and private debt securities including private sukuk, at just RM0.002 billion.
As a result, foreign holdings of Malaysian government bonds (MGS and GII combined) surged for the second straight month, rising by RM9.7 billion to RM268.1 billion in April, the largest increase since June 2020.
According to UOB, this accounts for 21.4 per cent of total government bonds outstanding, up from 20.9 per cent in March, marking a five-month high.
Foreign ownership of MGS alone reached a record RM216.8 billion, representing 33.6 per cent of total MGS in circulation.