Malaysia’s financial markets: Stocks, ringgit getting smashed
It is nothing less than literally a bloodbath what currently happens on Malaysia’s financial markets. The country’s currency, the ringgit, on August 14 dropped to a new decade-long daily low of 4.1335 to the US dollar, the weakest exchange rate since the Asian Financial Crisis ended in 1998.
The ringgit was in decline almost all over 2015, but the drop escalated in August as political tensions mounted as a result of financial insecurity stemming from high debts of state-owned fund 1Malaysia Development Berhad and corruption allegations against Prime Minister Najib Razak. Since August 3, the ringgit lost 10.2 per cent, and around 30 per cent over the past year. Adding to that, Malaysia has also been hit worst by China’s new currency regime whose effects are rippling across the region.
Malaysia’s foreign reserves fell from $140 billion in the first quarter of 2013 to $100.5 billion by July 15 this year, prompting economists to warn that Malaysia’s credit rating may be revised downwards by global ratings agencies if the central bank does not stop utilising the dwindling foreign reserves to buffer the falling ringgit value. Indeed, the drastic drop in August indicates that Malaysia’s central bank might have opted to step back from intervening in the market, unleashing pent-up downward pressure on the ringgit.
Bank Negara Governor Dr. Zeti Akhtar Aziz, who came under siege over issues surrounding 1Malaysia Development Berhad and the special task force investigating it and has not been seen in public for a while, fueling speculations that Najib Razak might have sacked her from her post, appeared on August 13 at a press conference and rejected rumours over her possible resignation.
Regarding a measure of last resort, namely pegging the ringgit to the US dollar in order to stabilise the exchange rate, she said that there was currently “no need” to do that or introduce capital controls.
“We have moved on since the Asian Financial Crisis to a larger developed financial market which is able to absorb the volatility,” Aziz said, adding that “once the external environment improves and domestic issues are sorted out, the ringgit will better reflect the fundamentals.”
Malaysia pegged the ringgit to the greenback at RM3.80 during the Asian Financial Crisis and removed it to float in 2005.
However, investors and traders at Bursa Malaysia, the country’s stock exchange, are not very impressed. The Malaysian stock index KLSE hitting a near three-year on August 14 low as a weakening ringgit and tumbling global oil prices prompted investors to cut holdings in regional energy shares. The index was down nearly two per cent at times, its lowest since November 2012. Shares of oil and gas services firm Sapurakencana Petroleum Bhd and electricity utility Tenaga Nasional Bhd topped the losers. Similar to the ringgit, the index’s drop was steepest in August so far, diving 8.8 per cent since August 3.
Malaysia’s economic growth moderated to 4.9 per cent in the second quarter year-on-year as slower global demand dampened exports, while higher prices following the implementation of a goods and services tax in April shrank private consumption from 8.8 to 6.4 per cent in the period. GDP growth is slowest since 2013, whereby the weakness of the ringgit has caused external debt to balloon to 68 per cent of GDP.
It is nothing less than literally a bloodbath what currently happens on Malaysia's financial markets. The country's currency, the ringgit, on August 14 dropped to a new decade-long daily low of 4.1335 to the US dollar, the weakest exchange rate since the Asian Financial Crisis ended in 1998. The ringgit was in decline almost all over 2015, but the drop escalated in August as political tensions mounted as a result of financial insecurity stemming from high debts of state-owned fund 1Malaysia Development Berhad and corruption allegations against Prime Minister Najib Razak. Since August 3, the ringgit lost 10.2 per cent,...
It is nothing less than literally a bloodbath what currently happens on Malaysia’s financial markets. The country’s currency, the ringgit, on August 14 dropped to a new decade-long daily low of 4.1335 to the US dollar, the weakest exchange rate since the Asian Financial Crisis ended in 1998.
The ringgit was in decline almost all over 2015, but the drop escalated in August as political tensions mounted as a result of financial insecurity stemming from high debts of state-owned fund 1Malaysia Development Berhad and corruption allegations against Prime Minister Najib Razak. Since August 3, the ringgit lost 10.2 per cent, and around 30 per cent over the past year. Adding to that, Malaysia has also been hit worst by China’s new currency regime whose effects are rippling across the region.
Malaysia’s foreign reserves fell from $140 billion in the first quarter of 2013 to $100.5 billion by July 15 this year, prompting economists to warn that Malaysia’s credit rating may be revised downwards by global ratings agencies if the central bank does not stop utilising the dwindling foreign reserves to buffer the falling ringgit value. Indeed, the drastic drop in August indicates that Malaysia’s central bank might have opted to step back from intervening in the market, unleashing pent-up downward pressure on the ringgit.
Bank Negara Governor Dr. Zeti Akhtar Aziz, who came under siege over issues surrounding 1Malaysia Development Berhad and the special task force investigating it and has not been seen in public for a while, fueling speculations that Najib Razak might have sacked her from her post, appeared on August 13 at a press conference and rejected rumours over her possible resignation.
Regarding a measure of last resort, namely pegging the ringgit to the US dollar in order to stabilise the exchange rate, she said that there was currently “no need” to do that or introduce capital controls.
“We have moved on since the Asian Financial Crisis to a larger developed financial market which is able to absorb the volatility,” Aziz said, adding that “once the external environment improves and domestic issues are sorted out, the ringgit will better reflect the fundamentals.”
Malaysia pegged the ringgit to the greenback at RM3.80 during the Asian Financial Crisis and removed it to float in 2005.
However, investors and traders at Bursa Malaysia, the country’s stock exchange, are not very impressed. The Malaysian stock index KLSE hitting a near three-year on August 14 low as a weakening ringgit and tumbling global oil prices prompted investors to cut holdings in regional energy shares. The index was down nearly two per cent at times, its lowest since November 2012. Shares of oil and gas services firm Sapurakencana Petroleum Bhd and electricity utility Tenaga Nasional Bhd topped the losers. Similar to the ringgit, the index’s drop was steepest in August so far, diving 8.8 per cent since August 3.
Malaysia’s economic growth moderated to 4.9 per cent in the second quarter year-on-year as slower global demand dampened exports, while higher prices following the implementation of a goods and services tax in April shrank private consumption from 8.8 to 6.4 per cent in the period. GDP growth is slowest since 2013, whereby the weakness of the ringgit has caused external debt to balloon to 68 per cent of GDP.
