S&P MORE UP­BEAT ON MALAYSIA

Coun­try’s struc­tural po­si­tion re­mains very strong, says agency

New Straits Times - - Business -

RUPA DAMODARAN

KUALA LUMPUR ru­pa­banerji@me­di­aprima.com.my

MALAYSIA’S cur­rent ac­count sur­pluses have fallen much over the past decade, but its struc­tural po­si­tion re­mains very strong, says Stan­dard & Poor’s (S&P).

Policymaking re­mains strong as well, which makes the sov­er­eign rat­ing agency more op­ti­mistic about Malaysia.

S&P reaf­firmed Malaysia’s rat­ing at A- in Novem­ber last year.

Craig Michaels, who was the di­rec­tor for sov­er­eign and in­ter­na­tional pub­lic fi­nance rat­ings, said the ex­ter­nal bal­ance sheet was one of the key strengths from the credit rat­ing point of view.

“On the pol­icy front, our rat­ing is higher than what the mar­ket is im­ply­ing on risk­i­ness,” he said dur­ing a we­b­cast on the credit out­look for this year and the top risks in the Asia-Pa­cific re­gion.

Michaels said the 1Malaysia Devel­op­ment Bhd is­sue would not de­rail the policymaking strength.

How­ever, if policymaking is to weaken due to the is­sue like the deterioration on the fis­cal front, that could change the out­look.

Asia-Pa­cific chief econ­o­mist Paul Gru­en­wald said de­pre­ci­a­tion pres­sures had risen in the re­gion and gov­ern­ments had been tak­ing a three-pronged ap­proach by al­low­ing cur­ren­cies to weaken, fi­nance the out­flows with for­eign re­serves and to tighten re­stric­tion on the cap­i­tal out­flow.

“Our view is that most gov­ern­ments, in­clud­ing Malaysia, have been prag­matic in mix­ing the three to­gether.”

He also ex­pects Bank Ne­gara Malaysia to be prag­matic and use all the tools to strike a bal­ance be­tween re­serve re­duc­tion and cap­i­tal out­flow pres­sures on the cur­rency.

On the credit out­look for this year, S&P high­lighted ad­verse United States trade poli­cies to be top on the list of el­e­vated risks.

China, South Korea, and Tai­wan may be the economies most sen­si­tive if the new US ad­min­is­tra­tion adopts pro­tec­tion­ist trade poli­cies.

China’s debt over­hang is an­other risk. A dis­or­derly delever­ag­ing of China’s out­sized and grow­ing debt bur­den (par­tic­u­larly cor­po­rate) would un­der­mine mar­ket con­fi­dence, loan per­for­mance, and as­set and com­mod­ity prices.

Higher in­ter­est cost and volatile for­eign ex­change also re­main el­e­vated risks for the re­gion.

“The fi­nan­cial mar­kets have since set­tled down since the yield spike and cur­rency volatil­ity af­ter the US elec­tion, al­though in­fla­tion and US dol­lar in­ter­est rates are likely to rise.”

The other risks are cor­po­rate re­fi­nanc­ing chal­lenges and prop­erty mar­ket ad­just­ment as prop­erty prices in key mar­kets such as Aus­tralia, China and Hong Kong are ris­ing again.

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