Malaysia slowly winning battle against forex speculators
SINGAPORE: Foreign portfolio investors say they are coming back to Malaysia’s markets, six months after many of them revolted against the central bank’s crackdown on the offshore ringgit trading market.
Foreigners, who had held about half of the outstanding Malaysian government bonds, fled the market between November 2016 and March this year after Bank Negara Malaysia said they could no longer trade in ringgit nondeliverable forwards ( NDFs). These are offshore contracts used to hedge exposure to the ringgit.
Bank Negara maintained its ban on ringgit trading in the NDF market, which it considers opaque, volatile and subject to abuse, even as it bled foreign exchange reserves defending the falling currency and as bond yields rose. Foreigners withdrew at least US$14 billion from Malaysia’s bond markets between November and March.
By April, however, about 10 percent of that money had come back into Malaysian government and central bank bonds. The data for May, due next week, is expected to show even more foreign outflows have returned.
“A few weeks ago, when we saw this pattern of all big real money managers being very very underweight Malaysia, we saw that as a good time to be slightly contrarian,” said Jean-Charles Sambor, deputy head of emerging markets fixed income at BNP Paribas Investment Partners in London.
“Now we see that not only is the central bank willing to develop a credible onshore market, most real money guys are looking at ways to access the bond market. We see new counterparties and we think it’s heading in the right direction.”
Fund managers say, however, hedging exposures to the ringgit is not as easy as in other emerging markets, which offer the alternative of liquid offshore derivatives markets with barely any regulatory oversight.
Still, Bank Negara has worked to improve onshore trading. Malaysian exporters have been asked to bring home their earnings and foreigners are allowed to hedge all their exposures.
Bank Negara’s forex reserves data shows it has pumped about US$19 billion worth of cash into the foreign exchange trading system to improve liquidity.
“This may lay the platform for it to take advantage of revenue synergies that the larger organisational platform can attain and initiate better growth momentum more akin to its peers,” MIDF Research opined.
The research arm went on to add that should the merger go through, it is expected that additional investments will be needed for restructuring systems and technology that are needed to streamline the merger process.
The team at AllianceDBS Research Sdn Bhd (AllianceDBS research) highlighted that nothing much was disclosed during the briefing as the transaction is still at a preliminary stage.
“It was confirmed that the transaction will be an all-share deal with no cash involVed – new shares will be issued to acquire the business, asset and liabilities of AMMB. RHB does not intend to raise cash for the transaction.
“With no further details on the proposed merger, there is little we can conclude on the extent of revenues and cost synergies to be expected.”
This led AllianceDBS Research to view this as neutral, at best.
“Apart from size, it would appear that the merged entity would need to extract a lot of cost synergies. To start with, its domestic branch network staff and possible overlap in businesses would need to be assessed,” it explained, adding that RHB has 208 branches while AMMB has 175 branches.
“The merger would bring the enlarged entity’s position to be top for asset management, general insurance, equity broking.
“The share issuance to AMMB’s stakeholders would imply every party of the enlarged merged entity will see its respective stakes dilute from current levels. As stated in our previous note, the market has been aware that major shareholders of AMMB as well as RHB may be looking to exit."
Since RHB’s and AMMB’s resumption of share trading yesterday, RHB’s shares have seen a 5.46 per cent drop closing in at RM5.19 per share while AMMB’s shares have seen a similar decline of 2.3 per cent closing in at RM5.09 per share.