This evening, 17th September, I read a shocking news. An international investment bank said Ringgit is the most attractive compared to all other emerging market peers. Sounds unbelievable? Well, their reasons are as follows. Morgan Stanley Investment Management predicts that the ringgit as well as rupiah will outperform peers despite both having dropped to their lowest levels in 17 years due to a slump in oil prices and the US’s continuous uncertainty on when is the best time to raise interest rate.
It’s managing director, Jens Nystedt said, “Malaysia is the cheapest from our medium-term foreign-exchange modeling in emerging markets, and Indonesia is second.” He said that a Fed rate increase this year is already expected and further losses in the emerging-market exchange rate will be temporary since they have been declining since past year. Morgan Stanely Investment Management manages $403 billion at the end of June and it favours Malaysian sovereign debt. In actual numbers, the ringgit has fallen 18 percent within this year due to oil price and the allegations of corruptions against Prime Minister Najib Razak. This spurred outflows.
According to Nystedt, 32 percent of Malaysian debt are held by global investors. Malaysia’s local-currency bonds handed investors a 2.6 percent return this year according to indexes compiled by Bloomberg. He also said,
“In Malaysia the biggest risk that they have, in addition to political risk, is really the large ownership of the foreigners in the government bond market,” Nystedt said. “Given that we don’t expect a Taper Tantrum, we think we are being rewarded to take that risk at the moment.” Very briefly, Taper Tantrum refers to a situation where funds withdraw themselves from emerging markets due to Federal Reserve’s Quantitative Easing action. Read here: Taper Tantrum Nystedt expected The Fed to only increase 25 basis points this year and gradually increasing it to 2.50 percent to 3 percent in 2018. Any increase may cause a short-term selloff but it is possible that emerging markets may stabilise after a day or two of adjustments.
I personally think this is a little complex for majority of everyone to understand fully. The summary is that ringgit is seen as attractive despite some risks. This is when compared to its peers in the emerging economies. This assessment is however only by one investment management company. Let’s listen to a few more, especially after the Fed has increased the rates by whatever basis points. For now, I am still viewing some secondary properties and waiting for some potential stock buys. Nothing too attractive yet. We shall see.
written on 17 Sept 2015
Next suggested article: 1998 vs 2015, just numbers, no rhetorics
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