News that Malaysia might be disqualified from the World Government Bond Index (WGBI) weighed heavily on the ringgit in the global currency market yesterday.
However, the ringgit did recover after the market digested the WGBI advisory but the news still created a sea of red in Malaysia’s stock exchange where there were concerns of billions of ringgit worth of capital flight.
A report by Starbiz also predicted local selloff would intensify, with a potential exodus of almost RM20 billion to RM30 billion from the domestic capital market.
This depreciation has continued for nearly a month since March 21 and Bloomberg noted that the ringgit is among the worst-performing Asian currencies this year.
FTSE Russell, a stock market index provider, placed Malaysia on its bonds watch list for six months and said the final decision on whether it will be dropped from WGBI might come in September 2019.
The nation’s bond market is being considered for a potential downgrade from the current rating of two to one — the lowest on the WGBI — which would trigger the removal.
FTSE Russell’s move to review Malaysia’s bonds participation came a week after Norway’s US$1 trillion sovereign wealth fund was told to cut emerging-market governments and corporate bonds including in Malaysia.
The ringgit closed at a nearly three-month low against the US dollar today, dampened by weak sentiment towards the local currency following the possible downgrade of Malaysian bonds by global index provider, FTSE Russell.
At 6pm, the ringgit fell to 4.1330/1360 against the US dollar from 4.1310/1350 at yesterday’s close.
The local currency was traded at 4.1410/1450 versus the greenback on January 24, 2019.
Phillip Capital Management senior vice-president (investment) Datuk Nazri Khan Adam Khan said concerns over the potential downgrade had influenced investors risk-appetite and offset the weaker US dollar sentiment.
Although the impact might be temporary, he expected the ringgit downtrend to prolong until the end of this week.
“Our foreign fund (selling) has stabilised, so supposedly the outflow will stabilise soon. This concern (FTSE Russell) is just a knee-jerk reaction.
“The government needs to address this concern of bond managers and boost their confidence,” he told Bernama.
In its first Fixed Income Country Classification Review, FTSE Russell has put Malaysia and China under its full Watch List of fixed income markets that will be reviewed for potential changes to their Market Accessibility Levels.
“Malaysia — currently assigned a “2” and included to the WGBI (World Government Bond Index) since 2004, is being considered for a potential downgrade to “1” which would render Malaysia ineligible for inclusion in the WGBI.
“FTSE Russell said it will continue to engage with local regulators and market participants in Malaysia and China to assess the potential changes to a country’s classification,” it said on April 15.
Nazri Khan said the strong economic data from China had helped cushion the sentiment towards the ringgit today.
China’s economy grew faster than expected at 6.4 per cent in the first three months of this year, as stimulus measures began to reflect in the country’s economic activity, thus easing worries over the recovery in the world’s second largest economy.
Meanwhile, the ringgit was traded mixed against other major currencies.
It rose against the Japanese yen to 3.6892/6925 from 3.6923/6963 yesterday, and strengthened versus the British pound to 5.3890/3946 from 5.4033/4102.
The local unit, however, depreciated against the Singapore dollar to 3.0551/0583 from yesterday’s 3.0485/0526 and weakened vis-a-vis the euro to 4.6736/6774 from 4.6639/6688. — Bernama
Source : Malay Mail