Malaysia's Vulnerability Exposed by Dollar's Ascent
December 15 2016 - 5:49PM
Dow Jones News
By Rachel Rosenthal
Malaysia has been one of Asia's worst-hit economies amid the
continued climb of U.S. interest rates and the dollar.
Foreign investors sold $5.3 billion of Malaysian stocks and
bonds in November, the largest monthly outflow since September
2011, according to ANZ Bank. That is almost a quarter of the $22.1
billion pulled from emerging markets in the region, excluding
China.
The bulk of the selling was in Malaysia's bond market. The $4.5
billion of bonds sold by foreigners in November, in ringgit terms,
marks the biggest monthly debt outflow on record, according to
ANZ.
The ringgit was one of Asia's worst-performing currencies in the
aftermath of the U.S. election, and Malaysia's central bank has
been tapping the country's already low level of reserves to support
it. Last month, Bank Negara clamped down on offshore currency
speculators, a worrying echo of its maneuvers to stem capital
outflows during the Asian financial crisis of the late 1990s.
Despite the government's various attempts to support the
currency, the ringgit has lost 6.5% of its value against the
greenback since the U.S. election, hitting a nearly 19-year low on
Nov. 30. On Thursday, the currency weakened 0.9%, following the
Federal Reserve's announcement of its first rate increase in
2016.
Malaysia's Achilles' heel is the high level of foreign ownership
of its government bonds. Foreign money is flighty, a factor that
can accelerate a liquidity crunch during times of stress. While the
latest rash of selling slashed the proportion of foreign ownership
to 48% in November from 52% a month earlier, the percentage is
still very high for an emerging market.
Carolyn Cui contributed to this article
Write to Rachel Rosenthal at Rachel.Rosenthal@wsj.com
(END) Dow Jones Newswires
December 15, 2016 18:34 ET (23:34 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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