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