‘It’s just mat­ter of time be­fore BNM hits sweet spot’

New Straits Times - - Business -

LON­DON: It’s just a mat­ter of time be­fore Bank Ne­gara Malaysia finds the “sweet spot” for on­shore for­eign ex­change (forex) hedg­ing mea­sures, which will see the re­turn of for­eign in­vestors to the Malaysian bond mar­ket as well as more on­shore spot liq­uid­ity, says May­bank Kim Eng.

In an in­ter­view at the re­cently held In­vest Asia UK 2017, head of fixed in­come Win­son Phoon said the cen­tral bank was on the right track with all the proac­tive steps that it had taken since last Novem­ber.

“I think the forex mar­ket would po­ten­tially be a game changer for Malaysia, and if you look at the mea­sures implemented by Bank Ne­gara in Novem­ber, it was un­ex­pected,” said Phoon.

“How­ever, look­ing at the mea­sures taken in De­cem­ber and the fol­low-up in April, I be­lieve Bank Ne­gara will con­tinue tun­ing the on­shore forex hedg­ing mea­sure till they hit the sweet spot,” he added.

To recap, Bank Ne­gara had in last De­cem­ber in­tro­duced mea­sures to sta­bilise the ring­git.

Gover­nor Datuk Muham­mad Ibrahim was quick to stress that the mea­sures were not for cap­i­tal con­trol or fix­ing of the ring­git but to sta­bilise the cur­rency and en­sure liq­uid­ity in the mar­ket.

Among the mea­sures were to al­low ex­porters re­tain up to 25 per cent of ex­port pro­ceeds in for­eign cur­rency and the rest in ring­git; res­i­dents with do­mes­tic ring­git bor­row­ing were free to in­vest in for­eign cur­rency as­sets, both on­shore and abroad, up to the pru­den­tial limit of RM50 mil­lion for cor­po­rates and RM1 mil­lion for in­di­vid­u­als; as well as al­low­ing res­i­dents and res­i­dent fund man­agers to freely and ac­tively hedge US dol­lar and yuan with an ex­po­sure of up to a limit of RM6 mil­lion per client per bank.

Last month, Bank Ne­gara’s fi­nan­cial mar­kets com­mit­tee in­tro­duced more initiatives which in­cluded al­low­ing com­pa­nies to hedge up to RM6 mil­lion of their forex ex­po­sure and non-bank en­ti­ties to hedge 100 per cent of their for­ward po­si­tions.

This flex­i­bil­ity, said the cen­tral bank, would al­low ex­porters and im­porters to un­wind 100 per cent of hedged po­si­tions.

“We see the ring­git be­com­ing stronger on the back of port­fo­lio flows, cur­rent ac­count and di­rect in­vest­ment, and di­rect in­vest­ment which has been sta­ble for the last few years,” said Phoon.

“We are look­ing at a fair value of RM3.65 to the dol­lar, but un­for­tu­nately, the mar­ket does not trade at fair value.”

He said credit spread has been tight­en­ing over the last cou­ple of months and there has been a pick up in ring­git de­nom­i­nated paper which gives fairly de­cent re­turns.

“As an is­suer, we have seen some in­vestors tak­ing an op­por­tu­nity of this, adding to the local bond mar­ket liq­uid­ity. There has been a fairly size­able out­flow but I do think that even­tu­ally in­vestors will start dip­ping their toes in. All in all, things are turn­ing fairly pos­i­tive,” he added.

Phoon was one of the speak­ers of the “Asean in the Spot­light: Trends, Out­look, Op­por­tu­ni­ties for In­vestors and Is­suers”, along­side the May­bank group’s group cor­po­rate trea­surer Odie Lee who is pos­i­tive on Southeast Asia as an in­vest­ment des­ti­na­tion.

Held at the May Fair Ho­tel in Cen­tral Lon­don, the In­vest Asia UK at­tracted more than 300 del­e­gates from 23 coun­tries.

A to­tal of 31 cor­po­ra­tions from 12 coun­tries in­clud­ing China, South Korea, Tai­wan, In­dia, Malaysia, Thai­land, In­done­sia, the Philip­pines and Pak­istan, cov­er­ing North Asia and Asean with to­tal mar­ket cap­i­tal­i­sa­tion of US$500 bil­lion and 120 funds across Europe, to­talling US$19 tril­lion in As­sets Un­der Man­age­ment, par­tic­i­pated in the con­fer­ence. Lid­i­ana Rosli

BLOOMBERG PIC

May­bank Kim Eng is look­ing at ring­git’s fair value of RM3.65 to the dol­lar.

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