BY  Business Times Malaysia (BT)

KUALA LUMPUR: Malaysia is poised to attract increased inflows from global investors as geopolitical tensions in the Middle East reshape global risk appetite, according to United Overseas Bank (UOB).

Senior economist Julia Goh and economist Loke Siew Teng identified three key pull factors supporting Malaysia’s appeal: relative stability, resilient macroeconomic fundamentals, and a strengthening currency.

They noted that the prolonged conflict — despite a temporary ceasefire — is likely to keep global markets on edge, prompting a reallocation of investments toward relatively safer markets.

“Global investors are likely to shift portfolios away from economies with higher exposure to Middle East risks toward lower-risk markets, including Malaysia.

“Malaysia’s macroeconomic resilience, firmer currency performance, and relative policy stability compared with regional peers should continue to support investor appeal in the near term,” they said in a research note.

They added that recent market conversations and channel insights indicate growing investor interest in Malaysia following the conflict.

Strong Foreign Inflows Into Debt Markets

Malaysia’s capital market has recently seen renewed foreign interest, with portfolio flows swinging to a net inflow of RM6.1 billion in March, compared with a net outflow of RM2.3 billion in February.

This marks the strongest monthly inflow since May last year, driven primarily by foreign purchases of Malaysian debt securities. In contrast, equities recorded marginal net foreign outflows of RM40 million.

In the first quarter, total foreign portfolio inflows reached RM5.8 billion, supported by RM4.6 billion into debt markets and RM1.2 billion into equities.

UOB noted that the bulk of inflows was concentrated in Malaysian Government Securities (MGS), which recorded net foreign purchases of RM5.1 billion in March.

Additional inflows of RM2.8 billion into private debt securities — including sukuk — helped offset continued foreign selling in Government Investment Issues and Treasury bills.

Foreign holdings of Malaysian government bonds rose by RM3.8 billion to RM283.1 billion in March, accounting for 21.6% of total outstanding government bonds. Holdings of MGS alone reached a record RM235.4 billion, representing 34.1% of total issuance.

Equity Participation Remains Soft

Despite strong momentum in debt markets, foreign participation in equities remained subdued, with ownership declining to a five-month low of 18.9% of total market capitalisation.

Global Uncertainty Supports Malaysia’s Appeal

UOB highlighted that heightened global uncertainty is driven by supply chain disruptions and inflationary pressures, exacerbated by the near five-week closure of the Strait of Hormuz and damage to oil infrastructure in the Middle East.

These developments are expected to weigh on global growth while complicating inflation trends and monetary policy decisions — factors that further reinforce Malaysia’s attractiveness as a relatively stable investment destination.

Ringgit Strengthens on Inflows

On the currency front, the Malaysian ringgit has shown signs of strengthening, closing at 3.9760 against the US dollar, compared with 4.0498 at end-March and 4.0600 at end-2025.

“Should foreign portfolio inflows remain sustained, the ringgit is expected to stay supported,” UOB said.

Based on current projections — pending further developments surrounding the ceasefire involving the US, Israel and Iran — UOB forecasts the USD/MYR exchange rate at:

* 4.08 in Q2
* 4.02 in Q3
* 3.98 in Q4
* 3.94 in Q1 2027

External Position Remains Stable

Meanwhile, Bank Negara Malaysia reported a decline in foreign reserves for the first time in a year, falling by US$1.7 billion month-on-month to US$126.6 billion at end-March.

The central bank noted that reserve levels remain adequate, covering 4.6 months of imports and standing at 0.9 times short-term external debt.

Despite the dip, UOB emphasised that Malaysia’s overall external position remains sound, with continued investor interest expected amid shifting global dynamics.