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Emerging Markets DatafileJanuary 29, 2004
BUSINESS TIMES
MALAYSIA
ENGLISH
Economic impact from bird flu expected to be minimal, BUSINESS TIMES
ASIA
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THE treasury market is set for a busier year in 2004, driven by better economic prospects and speculation over a possible change in the ringgit peg to the US dollar.
“The growth potential for treasuries is tremendous this year,” said RHB Bank Bhd executive vice-president Michael Lim. RHB is one of the top three treasury players in the country.
More money is expected to flow into the country this year as investors are betting on better corporate earnings as well as currency gains.
With Malaysia’s economy expected to accelerate at least one percentage point faster than it did last year, all sectors are anticipated to reap the bounty. Exporters, in particular, will ride on the recovering global market, beefing up the trade surplus and the central bank reserves further.
Improved business sentiment has in turn spurred a rally in the treasury market, which Lim said is “pulling the foreign funds in”.
Treasury business makes up 20 to 25 per cent of RHB’s group income.
Lim said that capital from hedge funds and investment banks could also have flowed into Malaysia in anticipation of the change in the ringgit peg. The ringgit, currently pegged at RM3.80 to US$1, has been under increasing scrutiny lately as the US dollar hit fresh lows against the euro, pulling the ringgit down with it. Should the ringgit appreciate after a change in the peg, investors who bought shares on the Kuala Lumpur Stock Exchange will reap a bonus in favourable foreign exchange gains.
“They take the view that the ringgit should be stronger and this is attracting a little bit of money in,” said Lim. The Kuala Lumpur Stock Exchange Composite Index (KLCI) has leapt 5 per cent in the last month, pushed up by investors’ bullishness. The KLCI reached a 42-month high on Monday, but lost 1 per cent in the last two days – alarmed by the fear of the spreading bird flu in several Asian countries. According to Bank Negara Malaysia’s monetary update that was released yesterday, the ringgit recovered slightly against the euro by 0.9 per cent while depreciating against the pound sterling by 1.8 per cent this month. It weakened 0.7 per cent against the yen.
Similarly, the ringgit was mixed against the regional currencies. It strengthened against the Philippine peso by 0.5 per cent while depreciating against other regional currencies in the range of 0.2 per cent to 1.5 per cent.
Lim, nevertheless, does not expect any change in the ringgit peg despite the sliding dollar.
“The peg has brought us a lot of goodies. The US dollar is only one part of the equation. We should be more concerned about our trading partners’ currencies,” he said.
Bank Negara has indicated that Malaysia will only consider revaluing its currency if it is more than 20 per cent undervalued compared to the regional currencies. This has yet to happen.
“The ringgit ought to be at around RM3.67 per US dollar. If you look at the RM3.80 we have now, it’s not much difference,” said Lim.
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