KUALA LUMPUR: Capital flows into emerging markets, including Malaysia, are expected to remain volatile and uneven, UOB Global Economics & Markets Research said.
In a note, the firm said the flows would be influenced by energy supply risks, global technology developments and movements in the US dollar amid evolving expectations for US Federal Reserve policy.
In July, Malaysia’s foreign portfolio position swung to a net outflow of RM5.4 billion from a net inflow of RM2.5 billion in June.
UOB said the reversal was entirely due to foreign selling of Malaysian debt securities, which amounted to RM5.6 billion in July compared with net purchases of RM4.9 billion in June.
This more than offset net foreign purchases of equities totalling RM300 million in July, reversing from net selling of RM2.4 billion in June.
Investor sentiment was weighed by expectations of higher US interest rates and domestic political uncertainty, it said.
Partly reflecting the foreign portfolio outflows, Bank Negara Malaysia’s international reserves declined by US$500 million month-on-month to US$132.1 billion at end-July, marking the first decline in four months.
UOB said the reserves remained adequate, covering 4.7 months of imports of goods and services and representing 0.9 times total short-term external debt.
It also said BNM’s net short foreign exchange swap position widened for the fifth consecutive month to a 16-month high of US$27.2 billion at end-June, equivalent to 20.5 per cent of total foreign reserves.
It added that domestically, policy credibility, fiscal discipline, reform progress and political stability will be key to sustaining investor confidence and portfolio inflows.
UOB expects the ringgit to remain range-bound at 4.00 to 4.10 against the US dollar in the near term.