Wonder why ringgit's getting crush???

Source: http://www.cnbc.com/id/100979900

The Malaysian ringgit plunged to its lowest level in over three years on Thursday amid the brutal sell-off across emerging market assets, and strategists say the pain may not be over for the currency.

The ringgit has declined 10 percent against the U.S. dollar since late-May on concerns over a potential capital flight from the country's government bond market in favor of rising U.S. Treasury yields.

As illustrated in the chart, foreigners hold almost 50 percent of Malaysia's government bonds, an exceptionally high level compared with other emerging markets in the region, placing the currency in a precarious position.

Malaysia's deteriorating economic fundamentals - seen in surging levels of household debt - and the risk of a credit rating downgrade exacerbates the risk of outflows from the country's debt market, say experts.

"In Malaysia, the key risk to capital flows emanates from the large foreigners' holding of bonds. The fiscal concerns and the risk of Fitch downgrading Malaysia's rating could trigger net outflows from the bond market, hitting the currency," Santitarn Sathirathai, research analyst at Credit Suisse wrote in a recent note this week.

In July, Fitch Ratings cut the nation's credit outlook to negative from stable, citing a lack of budgetary reform and rising debt levels.

Consumer indebtedness rose to 80 percent of gross domestic product (GDP) at the end of 2012, an increase of 20 percent over the last five years, according to RBS.

"The debt servicing ratio or the proportion of household income used for interest and debt repayments is close to 44 percent. This poses a headwind to growth and high risk of financial stress if interest rates rise," Sanjay Mathur, chief Asia economist at RBS wrote in a report called 'The case for a weaker ringgit' this week.

Despite the headwinds, Barclays believes the potential capital flight risk by foreign investors from government debt has been largely priced into the ringgit moves.

"We expect further ringgit depreciation in the near term, as investors remain focused on the potential for bond outflows. Further ahead, the ringgit is likely to be supported by Malaysia's robust domestic growth, large current account surplus and manageable short-term external debt," Hamish Pepper, currency strategist at Barclays wrote in a report note.

Malaysia's current account surplus fell to 2.6 billion ringgit ($785 million) in the second quarter from 8.7 billion ringgit in the first three months, as a result of plunging exports and robust imports.

Barclays expects the currency to appreciate to 3.25 against the U.S. dollar over the next three months, from 3.31 currently.

Ringgit Falls Most in 3 Weeks, Bonds Drop on Fitch Outlook Cut

Source: http://www.bloomberg.com/news/2013-07-31/ringgit-falls-most-in-3-weeks-bonds-drop-on-fitch-outlook-cut.html

Malaysia’s ringgit declined the most in three weeks and bonds extended losses after Fitch Ratings cut the nation’s credit outlook to negative from stable, citing rising debt levels and a lack of budgetary reform.

The currency dropped to a three-year low and 10-year bond yields climbed to the highest since April 2011 after Fitch said in a statement yesterday that Malaysia’s public finances are its “key rating weakness.” The shrinking current-account surplus and $2.9 billion of sovereign debt maturing today raises the risk of capital outflows, putting the ringgit on course for its worst month in more than a year.

“The dynamics of Malaysia’s current-account surplus getting narrower and the fiscal deficit getting wider are negative for the ringgit,” said Nizam Idris, head of fixed income and currency strategy at Macquarie Bank Ltd. in Singapore. “The shorter-term issue is the bond repayment, which the market has been worried about.”

The ringgit depreciated 0.6 percent, the biggest decline since July 8, to 3.2462 per dollar as of 10:33 a.m. in Kuala Lumpur, according to data compiled to Bloomberg. The currency touched 3.2475, the weakest level since July 2010, and lost 2.7 percent this month.

The yield on 3.48 percent government notes due March 2023 rose one basis point to 4.11 percent, the highest for a benchmark 10-year note since April 2011 and adding to an 18 basis-point increase yesterday. The two-year onshore interest-rate swap climbed two basis points to 3.36 percent, matching the highest level since August 2011, based on closing prices compiled by Bloomberg.

Deficit Target

Fitch affirmed Malaysia’s long-term foreign currency-denominated rating at A-, the fourth-lowest investment grade. It will be difficult for the government to meet a 3 percent deficit target in 2015 without more consolidation, the company said in the statement.

Malaysia’s debt to gross domestic product ratio of 53.5 percent is higher than 25 percent in Indonesia, 51 percent in the Philippines and 43 percent in Thailand, data compiled by Bloomberg show. It’s also approaching the government’s 55 percent limit. The budget deficit widened to 4.7 percent of GDP in 2012 from 3.8 percent in 2011, led by a 19 percent rise in spending on public wages ahead of the May election, Fitch said.

Pressure on the ringgit will remain until the external outlook improves and Bank Negara Malaysiawill probably defend the ringgit’s 3.25 per dollar level, according to a DBS Group Holdings Ltd. research note today. The current-account surplus will narrow to 6 percent in 2013 from 6.1 percent last year and 12 percent in 2011, a Bloomberg survey of economists shows.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 20 basis points, or 0.20 percentage point to a three-week high of 8.74 percent.

Malaysia Ringgit Drops to Three-Year Low on Bond Outflow Concern

Source: http://www.bloomberg.com/news/2013-07-30/malaysia-ringgit-drops-to-three-year-low-on-bond-outflow-concern.html

Malaysia’s ringgit fell to a three-year low on concern global investors will repatriate funds after $2.9 billion of sovereign debt matures tomorrow.

The local-currency bonds “may have a large proportion of foreign ownership” and capital outflows could cause the ringgit to underperform, Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong, wrote in a research note today. The yield on the government’s benchmark three-year notes ended yesterday at the highest level since November 2008, according to data compiled by Bloomberg.

“One of the factors that is behind the depreciation in the ringgit has been the large redemption of Malaysian government securities,” said Khoon Goh, a senior strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Singapore. “That has got the market somewhat concerned that we’re going to see some large outflows from the bond market.”

The ringgit declined 0.3 percent to 3.2365 per dollar as of 10:03 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It earlier touched 3.2379, the weakest level since July 1, 2010. It has fallen for five straight days, the longest losing streak since December 2012, and depreciated 2.4 percent this month and 5.5 percent in 2013.

Global funds held 33 percent of Malaysian sovereign notes in May, the highest proportion among Southeast Asia’s biggest economies, according to central bank and finance ministry data. This renders the nation’s securities vulnerable to a global sell-off, Arjun Shetty, a rate strategist inSingapore at Deutsche Bank AG, said last week.

Debt Auction

The government will auction 4.5 billion ringgit ($1.4 billion) of 2020 securities today, according to data published on the central bank’s website.

The ringgit also weakened amid concern about a possible deterioration of Malaysia’s current-account balance, Goh said. The surplus fell to 8.7 billion ringgit in the January-March period from 22.9 billion ringgit in the preceding three months, official data show. The nation may record an $800 million current-account deficit in the second quarter, the first shortfall since 1997, according to a July 26 note from Bank of America Merrill Lynch.

One-month implied volatility in the ringgit, a measure of expected moves in exchange rates used to price options, rose 16 basis points, or 0.16 percentage point, to 8.30 percent.

Government bonds declined. The yield on the 3.48 percent notes due March 2023 climbed four basis points to 3.97 percent, the highest since the notes were issued in March, according to data compiled by Bloomberg.