Ringgit deemed still vulnerable, analysts warn of more asset sales

“As long as foreign investors are not done with their asset selling, it would be difficult for the ringgit to recover to its previous level,” MIDF Research said yesterday.

PETALING JAYA: The ringgit, which had been hammered by a huge outflow of funds from overseas, continues to be vulnerable due to the still high level of foreign holdings in the bonds and equity markets, analysts said.

“As long as foreign investors are not done with their asset selling, it would be difficult for the ringgit to recover to its previous level,” MIDF Research said yesterday.

Foreign investors have taken out more than RM15bil from Bursa Malaysia so far this year on worries that the lower prices of commodities and weakening growth in China will hurt the domestic economy.

Credit Suisse said foreign investors still had sizeable positions in assets here, although US$3.4bil (RM14.6bil) worth of bonds and equities were sold last month, the biggest monthly outflows since 2013.

Foreign holdings of bonds and bills stood at US$37.6bil (RM162bil) and US$3.5bil (RM15bil) respectively.

The huge outflow of foreign funds contributed to the ringgit’s plunging exchange value against the US dollar, declining 19% year to date.

The slump of the ringgit was faster compared with any other currency in the region.

MIDF Research attributed the significant fall of the ringgit to the “panic” sell-off of Malaysian government securities (MGS), with Bank Negara’s data concurring with its expectations.

Bank Negara’s latest statistics showed that overseas investors trimmed their holdings on MGS by RM8bil in August.

“We expect at least RM60bil worth of debt securities still waiting to be sold in the market, which we think would be done in the next six to 12 months,” MIDF said.

The ringgit was traded against the US dollar at 4.313 yesterday.

Credit Suisse predicted that the exchange rate could deteriorate further to 4.50 by the end of the year.

“Our concerns is poor liquidity and lack of Bank Negara support” for the ringgit, the firm said.

While Credit Suisse said the ringgit was “obviously cheap” on valuation terms, the current economic landscape made it very difficult for the currency to recover.

It added that the uncertain outlook on commodity prices for crude and palm oil, weak global demand and China’s slowdown could result in further decline of Malaysia’s current account surplus to around US$2bil in the second half from US$4.9bil in the first half.

Credit Suisse, however, doesn’t think that monetary policy would respond to the ringgit’s weakness and expects Bank Negara to hold policy rates steady at 3.25%.

“Should the central bank declare policy measures to ease the pressure on the currency, this include tapping US dollar resources from government-linked companies to enforce faster export earnings repatriation and conversion. But, with the pending Fed’s rate hike, the authorities may want to see a further unwinding of foreign capital for now and save their bullets for potential stress post-Fed normalisation,” it said.

Meanwhile, BIMB Securities Research estimated total portfolio outflow of equities and debt securities combined had reached RM43.9bil so far this year.

“With the ringgit remaining soft, we expect cautious trading sentiment in the ringgit space.

“Nevertheless, a cheaper ringgit combined with higher relative yields could be seen as an attractive entry to lure offshore investors,” it said.

It added that Malaysia’s foreign reserves posted a marginal drop of US$2bil to US$94.7bil as at Aug 28, compared with a sharp decline of US$8.8bil in July, which suggested that Bank Negara might have reduced its intervention.