Malaysia's Vulnerability Exposed by Dollar's Ascent

By Rachel Rosenthal 

Malaysia has been one of Asia's worst-hit economies amid the continued climb of U.S. interest rates and the dollar.

Foreign investors sold $5.3 billion of Malaysian stocks and bonds in November, the largest monthly outflow since September 2011, according to ANZ Bank. That is almost a quarter of the $22.1 billion pulled from emerging markets in the region, excluding China.

The bulk of the selling was in Malaysia's bond market. The $4.5 billion of bonds sold by foreigners in November, in ringgit terms, marks the biggest monthly debt outflow on record, according to ANZ.

The ringgit was one of Asia's worst-performing currencies in the aftermath of the U.S. election, and Malaysia's central bank has been tapping the country's already low level of reserves to support it. Last month, Bank Negara clamped down on offshore currency speculators, a worrying echo of its maneuvers to stem capital outflows during the Asian financial crisis of the late 1990s.

Despite the government's various attempts to support the currency, the ringgit has lost 6.5% of its value against the greenback since the U.S. election, hitting a nearly 19-year low on Nov. 30. On Thursday, the currency weakened 0.9%, following the Federal Reserve's announcement of its first rate increase in 2016.

Malaysia's Achilles' heel is the high level of foreign ownership of its government bonds. Foreign money is flighty, a factor that can accelerate a liquidity crunch during times of stress. While the latest rash of selling slashed the proportion of foreign ownership to 48% in November from 52% a month earlier, the percentage is still very high for an emerging market.

Carolyn Cui contributed to this article

Write to Rachel Rosenthal at [e-mail]

(END) Dow Jones Newswires

December 15, 2016 18:34 ET (23:34 GMT)

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