SINGAPORE: A rebound in Malaysia’s ringgit will prove short-lived as the factors that made it Asia’s worst performer this year show few signs of going away, according to an investment arm of France’s largest bank.
“We’re in a situation where nothing’s changed, so therefore the only conclusion we have is that Malaysia remains a market to be short,” said Mark Capstick, a London-based fund manager at BNP Paribas Investment Partners, which oversees 532 billion euros (US$605bil).
“We’re short right across the board,” he said, adding that assets being bet against include the ringgit as well as the nation’s local-currency and global bonds.
While the ringgit has appreciated more than 6% in October to rank among the top five in emerging markets, it’s been dogged by a persistent drop in oil prices, slowing Chinese growth and a probe of fund transfers into Prime Minister Datuk Seri Najib Tun Razak’s bank accounts.
Malaysia’s currency is rebounding from a 17-year low reached in September as the receding prospect of a US interest-rate increase in 2015 revives demand for higher-yielding assets worldwide.
Like BNP Paribas, Pacific Investment Management Co (Pimco) is also sticking to its guns and maintaining bets that the ringgit’s slide will resume.
Pimco, which oversees US$1.52 trillion, reported Oct 1 it had short positions on emerging-market currencies including the ringgit, Thai baht and South Korea’s won.
Global funds have pulled RM41.5bil (US$10bil) from Malaysian debt and equities this year amid a 15% slide in the ringgit.
The halving in Brent crude prices from a 2014 peak is crimping government revenue for Asia’s only major oil exporter, just as growth slows in China, Malaysia’s second-biggest export market.
There are a couple of “bright lights,” said Capstick, citing the winding down of 1MDB, the currency-swap lines Malaysia has with China and the “sizable” pension funds that the nation could fall back on.
The Employees Provident Fund had RM667bil of assets as of June 2015, according to the state-controlled entity’s website.
The drop in Malaysia’s foreign-exchange reserves completes the “whole risk,” Capstick said, noting that the central bank will be looking to accumulate dollars during periods of ringgit gains, said Capstick. – Bloomberg