KUALA LUMPUR: Some RM60 billion of ringgit-denominated bonds may be sold within the next one year, a move which will further weaken the currency, according to MIDF Amanah Investment Bank Bhd.

In a note yesterday, MIDF said it anticipates pressure on the ringgit to continue as foreign ownership in the Malaysian debt market was about RM68.8 billion higher, as compared with the January 2011 level.

MIDF said the significant depreciation of the ringgit was due to the selling of Malaysian Government Securities (MGS).

“Data from [the] central bank showed that foreign holdings of MGS were reduced by RM8 billion in August, the highest in 25 months. On the other hand, total foreign bond and sukuk holdings were down by RM8.9 billion, the highest value year to date.”

“We expect there will be at least RM60 billion worth of debt securities still waiting to be sold in the market, which we expect to be done in [a] six to 12 months period, depending on the factors affecting the pace mentioned above. As long as foreign investors are not done with their asset selling, it would be difficult for [the] ringgit to recover to its previous levels,” MIDF said.

On Tuesday, the ringgit depreciated to a fresh 17-year low against the US dollar at 4.3713. As at 10.30am yesterday, the exchange rate stood at 4.3062. In comparison, the ringgit was trading at 3.1845 against the greenback a year earlier.

Yesterday, MIDF said the ringgit’s strength would take the cue from global and domestic factors, which include higher US interest rates.

“The gradual selling of debt securities in Malaysia is expected to continue, as the United States will definitely increase their interest rates moderately. The main concern for Malaysia [and other emerging markets] is more about the pace of the selling.

“Downwards pressure on oil prices, domestic political instability, dampening economic data and [a] faster-than-expected increment in the Fed (Federal Reserve) interest rate ... all of these will lead to a faster pace of asset selling in Malaysia, and eventually put a stress on the ringgit,” MIDF said.

This article first appeared in digitaledge Daily, on September 10, 2015.