KUALA LUMPUR: Bank Negara Malaysia’s (BNM) intervention in the foreign currency market, if it continues in the long term, will hurt global confidence on the country, says BlackRock Asset Management North Asia Ltd managing director Steven Moeller.
“In the short term, they can provide some stability, but I think long term, when you start to intervene too much, it then becomes problematic. So, my general suggestion on that would be it could be okay and necessary in the short term but it’s not something we would like to see in the long term as far as gaining confidence from global investors on the country,” Moeller told The Edge Financial Daily in an interview after a media briefing on “A Look at Investment Markets Ahead” by BlackRock and AmInvest yesterday.
Last Friday, BNM confirmed that it had been intervening in the onshore market to stem the slide in the ringgit. The central bank has tried to clamp down on trading in the non-deliverable forward market. The ringgit closed at 4.42 against the US dollar yesterday.
While emerging -markets currencies have fallen across the board, the Malaysian currency has been one of the worst, after the yen. Besides the fear and uncertainty surrounding US President-elect Donald Trump’s policy on external trade that has hurt emerging markets, the ringgit is also affected by other local factors, said Moeller.
“Some of the local factors include the commodity-driven economy of the country, which is expected to be affected further if Trump was to go ahead with some of the rhetoric that he said.
“It is also possible that the political uncertainty has caused the ringgit to weaken even against its peers,” added Moeller.
Recall that the oil price has showed signs of bottoming in February this year, when it rebounded from its low of US$29.64 per barrel to its current level at US$47.49 (RM209.45) per barrel, while the ringgit has remained flattish until the recent plunge caused by foreign sell-off in the bond market.
Moeller, however, admitted that he is no expert on the political scene in the country, saying that the outlook of the country hinges on many variables at this point in time and it is difficult to point to a certain factor for its downside. With all these uncertainties, he said that the downtrend of the ringgit is likely to continue in the near term.
Earlier during the media briefing, AmInvest head of retail and retirement funds Alex Tan said there is too much noise since Trump’s presidential triumph that has led to the decline in the ringgit.
“There is just too much unknown at this point in time. In regard to the outlook on Malaysia, we think that it is best to take the wait-and-see approach until the first quarter of 2017 to have a better picture,” added Tan.
In line with this, Moeller said BlackRock has continued to underweight the Malaysian market despite a more optimistic outlook on the emerging markets, especially Asia, due to uncertainties.
“We continue to underweight Malaysia. Although we have seen things beginning to improve, certain things need to happen in Malaysia before we move into an overweight position,” he added.
Moeller said for example, that structural reform has to happen on a broader base with better progress on social reforms, as well as better clarification on the value-added tax.
As for Asia, the optimistic views were due to some of the positive signs of reflation and steady reform progress seen in the region.
Moeller noted that the current outlook for the market remains fluid and depends on the policy implemented by Trump once he takes over the office.
“We have to be cautious in our views and see what Trump’s government is going to do in his first 100 days in office, to know if he was to take the protectionism stance that he talked about during his presidential campaign,” said Moeller.
Both Moeller and Tan are confident that Asia remains an opportunity for investors, saying that valuations in the region remain below historical average, with improved investor sentiments towards Asia, as well as the gaining momentum in exports.
The FBM KLCI closed up 2.04 points at 1,629.32 points yesterday, a decline of 3.73% year to date. The bond market has seen the benchmark yield for Malaysian Government Securities (MGS) five-year and 10-year jump to 4.02% and 4.3% respectively. In comparison, the yield was only at 3.45% and 4.17% for the five-year and 10-year MGS as at end-Dec 2015.