Foreigners warming to ringgit again
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 offshore ringgit trading.
Foreigners, who had held about half of the outstanding Malaysian government bonds, fled the market between November and March after Bank Negara Malaysia said they could no longer trade in ringgit non-deliverable forwards (NDFs). These are offshore contracts used to hedge exposure to the currency.
The central bank 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% of that money had come back into government and central bank bonds. Figures for May, due this week, are 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 underweight on Malaysia, we saw that as a good time to be slightly contrarian,” said Jean-Charles Sambor, deputy head of emerging market 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, that hedging ringgit exposure is not as easy as in other emerging markets, which offer the alternative of liquid offshore derivatives markets with scant 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 reserves data show it has pumped $19 billion worth of cash into the forex trading system to improve liquidity.
“The worst of the outflow pressure seems to be behind us now,” Deutsche Bank analyst Sameer Goel said, adding that the improving economic environment was another reason to buy ringgit bonds.
GDP growth in the first quarter of 2017 hit 5.6% over the same period a year earlier, driven more by a pickup in domestic demand than the modest recovery in the price of the oil and gas that Malaysia exports.
Citi analysts said they were bullish, mainly because the ringgit was cheap and the authorities seemed inclined to let it appreciate.
The ringgit has risen 5% this year and was trading at 4.28 per dollar last Friday compared with around 4.20 last year before the NDF directive was announced.