Azmin: Najib must address nation on 1MDB scandal ~ 21 Jul 2016
http://www.freemalaysiatoday.com/category/nation/2016/07/21/azmin-najib-must-address-nation-on-1mdb-scandal/
Declassify 1MDB audit or fuel cover-up beliefs, Azmin tells PM ~ 15 Jul 2016
https://www.malaysiakini.com/news/348617
Malaysia foreign exchange reserves at US$97.3 billion as at 15 July 2016http://www.bnm.gov.my/
Malaysia foreign exchange reserves (1997-2016)http://www.tradingeconomics.com/malaysia/foreign-exchange-reserves
Malaysia foreign exchange reserves decreased to US$97,200m in June from US$97,263.17m May 2016. Foreign Exchange Reserves in Malaysia averaged US$83,120.69m from 1997 until 2016, reaching an all time high of US$155,165.30m in Aug 2011 and a record low of US$20,234.20m in Aug 1998.
Malaysia bond yields fall to lowest since 2013 on surprise OPR cut ~ 14 Jul 2016
http://www.thestar.com.my/business/business-news/2016/07/14/malaysia-bond-yields-fall-to-lowest-since-2013-on-surprise-opr-cut/
Interest due on 1MDB bond paid by Abu Dhabi guarantor ~ 11 May 2016
http://www.wsj.com/articles/interest-due-on-1mdb-bond-paid-by-abu-dhabi-guarantor-1462959185
Market braces for second 1MDB bond payment ~ 10 May 2016
http://www.msn.com/en-my/money/topstories/market-braces-for-second-1mdb-bond-payment/ar-BBsQ1sL
Malaysia central bank takes dollar deposits as ringgit sinks ~ 30 Oct 2015
http://www.bloomberg.com/news/articles/2015-10-29/malaysia-central-bank-said-to-take-interbank-dollar-deposits
Malaysia’s eventual fall from grace ~ 22 Oct 2015
http://blog.limkitsiang.com/2015/10/22/malaysias-eventual-fall-from-grace/
Malaysia government’s decision not to peg ringgit appropriate, says economist ~ 30 Sep 2015
http://www.themalaymailonline.com/malaysia/article/governments-decision-not-to-peg-ringgit-appropriate-says-economist
Malaysia turns to 1998 currency peg architect as markets bleed ~ 27 Aug 2015
http://www.bloomberg.com/news/articles/2015-08-26/malaysia-turns-to-1998-currency-peg-architect-as-markets-bleed
Emerging world battles the mighty US dollarBy Michael Collins, Investment Commentator at Fidelity
2 June 2015
When the Federal Reserve embarked on its third dose of quantitative easing in 2012, Brazil’s then-finance minister Guido Mantega slammed the Fed’s decision as the start of a “currency war”. The Fed was doing no such deliberate deed. But it was true to warn that a side effect of asset buying that reduced longer-term interest rates was a lower US dollar.
Wonder how Mantega feels now that the 28% plunge in the real against the US currency in the year to May is tormenting Brazil’s economy. So October last year, the central bank has raised its benchmark rate in six steps to a six-year high of 13.75% to prop up the real and fight the inflationary consequences of the currency’s dive. Inflation reached 8.2% in the 12 months ended April, while Brazil’s economy is headed for its worst recession in 25 years, if not 80 years.
One of the US dollar’s speediest ascents since President Richard Nixon ended gold conversion in 1971 is creating similar woes across the emerging world, especially in Chile, Hungary, Indonesia, Malaysia, Russia, South Africa, Turkey and Venezuela. The US dollar has soared 19% over the 12 months to May on a trade-weighted basis as it climbed against about three-quarters of the 24 emerging currencies. The US dollar’s climb is even quicker and steeper than its rise in the mid-1990s that triggered the Asia crisis of 1997, smashed Brazil and pushed Russia to default in 1998.
A stronger US dollar poses many of the same threats for emerging markets as it did a quarter of a century ago with one fresh twist. The dangers of a higher US dollar, as with 25 years ago, are that it savages living standards and fans inflation via higher import prices. (For those emerging countries with currencies tied to the US dollar, it batters export competitiveness.) Simply via the cross rates, a rising US dollar undermines commodity prices in US dollars, so many emerging countries are facing a collapse in export earnings. Lastly, it boosts debt repayments on US-dollar loans.
The last challenge comes in a different form than in the past and could be the most worrying of all. In emerging countries, companies – rather than governments – are holding record amounts of US-dollar debt. Thus, unlike the past, it’s the corporate bond market in the emerging world that is a bigger menace than the government bond market. Corporate default rates and downgrades are rising as emerging-market companies – from state-owned oil giants in Brazil and Russia, to Indian infrastructure companies, to domestic players with earnings only in local currency in China and Turkey – are tottering under US-dollar debts. State-owned Russian gas producer OAO Gazprom, for example, has borrowed US$12 billion (A$16 billion) since 2008, while Chinese property company Kaisa, which has defaulted on US$1.25 billion worth of bonds, has sold double that amount. (Quasi-government bodies are struggling too – Malaysia’s state investment company, 1Malaysia Development Bhd, was restructured to avoid collapse.)
Emerging currencies are tumbling, for capital flows are heading back to the US because the Fed is poised to raise the cash rate for the first time in nine years, such is its confidence in the US economy. Emerging nations could be headed for big trouble if the Fed lifts rates faster and by more than expected over the coming 12 months. Among all the fretting from emerging nations about the strong US dollar, they should remember two truths. First of all, home-grown causes are behind much of the dive in their currencies. The other is that the opposite scenario – a falling US dollar – would probably be a bigger hurdle for it would hamper the only fall-back plan most have for reviving their economies.
Perhaps US rate increases are built into expectations thanks to the Fed “dot plots” of where it expects US rates to be in coming times. Some of the emerging-country exposure to US-dollar loans is hedged through derivatives. Unexpected and rapid-fire US rate increases will disrupt more than emerging countries too. Interest rates around the world are lower than they were in the 1990s and the US dollar is not as strong, so the repayment burden imposed by these factors is relatively lighter than it was back then. Emerging governments are better insulated than their companies for they have preferred to borrow in local currency. Emerging Asia overall is well placed with its deeper foreign reserves, sounder banking systems and more flexible exchange rates, even if governments and consumers have borrowed heavily in local currency. Asian ex-China companies are said to earn enough US-dollar revenue to match their US-dollar debts. While many of its companies are vulnerable, China’s pegged (thus rising) yuan helps to steer its economy away from exports and towards consumption. The pressure of the rising US dollar is spurring reforms that the emerging world would have postponed if capital were still flowing in. The Indian rupee’s record low of 2013 is credited with granting the Reserve Bank of India the political space to raise interest rates three times to tackle inflation, while New Delhi has taken steps to curb its deficit and welcome more foreign investment. Indonesia has taken similar steps. But alas there are enough debt-heavy companies in the emerging world to cause ructions if US rates (and thus the US dollar) rise suddenly or by more-than-expected. Naturally, these corporate woes would shift onto governments, especially when state companies are in trouble.
Looked soundCompanies in the emerging world latched onto borrowing in US dollars because US interest rates have been below local rates since the Fed cut the US cash rate to close to zero in 2008 and embarked on three asset-buying programs from early 2009. Global bond managers were happy to buy US-dollar emerging bonds because the returns were higher than they could find on US government or US corporate bonds. The Bank of International Settlements estimates that from 2008 to 2014 US-dollar credit to non-bank borrowers in the emerging world jumped from US$2 trillion to about US$4.5 trillion, about the half the global amount outstanding. Within this total, US-dollar credit to Brazil, China and India has more than tripled to US$1.4 billion. Chinese non-bank companies have US$1.1 trillion of this.
This lending includes loans from banks and bond investors. (A bond is just a loan that can be resold.) Much of the bank lending happened outside the US banking system because non-US banks can easily attract deposits of the world’s foremost reserve currency. These lenders and borrowers are thus beyond the help of their local central banks, which can only act as lender of last resort in local currency. They are essentially subjects of the Fed while being outside the Fed’s jurisdiction.
Companies found it easier to borrow than attract equity investment because presumably equity investors saw them as too risky. Emerging companies were well aware of the currency risk of borrowing in US dollars. But those engaged in trade thought this peril was counterbalanced by their US-dollar earnings. They didn’t appear to allow for the cross-rates effect on commodities from a higher US dollar; when commodities prices drop in US dollars but remain steady in local currency for that’s all people can afford. They seem to have made no allowance for the possibility that materials and energy prices could plunge due to supply-demand imbalances. Fed rate increases will only add to their repayment burden. The global financial system thus confronts a new weak link; rollovers of maturing emerging corporate debt, especially by first-time issuers. J.P. Morgan expects the default rate among emerging-market high-yield corporate issuers to reach 5.4% this year compared with 3.2% in 2014 and about 2% in the US.
Authorities in emerging markets are devouring forex reserves to support their currencies, in part to shield their companies. IMF data shows forex reserves in emerging economies fell US$115 billion to US$7.74 trillion last year, the first drop since the series was compiled in 1995. Governments of commodity-dependent emerging countries are already losing tax revenue from the drop in commodities and confront economic slowdowns that will boost welfare spending. Their budgets won’t cope easily with nursing companies wobbling under US debt loads. Thus sovereign ratings are vulnerable. At the same time, the current-account deficits of these countries are widening as export earnings droop. In another crunch to domestic growth, local interest rates need to rise to attract the capital needed to cover current-account shortfalls as well as to curtail inflationary pressures from higher import prices. Thus growth prospects are diminishing in the emerging world, a formula for more political instability. Emerging-world debt is now attracting a higher premium to allow for increased political risk.
Dead endThe countries and companies that face the most problems do so in no small part because missteps by their governments have undermined currencies, on top of the fact that most left themselves over-reliant on a few commodities, if not one. Brazil’s President Dilma Rousseff is threatened with impeachment over a multi-billion-US-dollar bribery scandal tied to the state oil company, Petrobras, that she oversaw as chair. Oil-dependent Russia’s economy is expected to contract about 4% this year as western sanctions in retaliation for its invasion of Ukraine bite. South Africa’s President Jacob Zuma is mired in scandals including one over a state-funded home renovation. Turkey’s government is threatening the independence of the country’s central bank and investors are concerned about the country’s economic policy after parliamentary elections in June. Venezuela’s oil-dependent economy is expected to shrink 7% this year as the country groans under a shortage of daily necessities and an estimated inflation rate of 70%, conditions all made worse because the US has imposed sanctions to protest against a crackdown on dissidents by President Nicolás Maduro. (Argentina would be on the list but it’s already defaulted.)
Given all the angst about a rising US dollar, it may be a relief for emerging countries that their currencies gained against the greenback in recent months, especially April when 17 of 24 emerging currencies tracked by Bloomberg rose. Russia’s ruble rallied 13% in April, the best month for a currency that halved in 2014 since 1993. Brazil’s real jumped 8% the same month, its first gain since August. Malaysia’s ringgit strengthened 3.9%, its biggest gain since 2012, while Korea’s won added 3.8%, its best spurt since 2011. South Africa’s rand might have only edged up 1.5% but that gain ended five months of losses.
But it was only less-optimistic readings on the US economy that boosted these emerging currencies in April. Weaker reports on US housing, employment and retail sales that culminated in the US economy shrinking at an annualised rate of 0.7% in the first quarter of this year have prompted talk the Fed would postpone its first rate increase until later in the year or even into 2016.
A lower US dollar due to a weaker US economy will hardly help the hardest-hit countries that for the most part are falling back on the default plan for weak-willed countries with savaged currencies – to bank on the US consumer to buy their exports.
A slowing US economy only dims hopes for export-led recoveries in these countries, which already rely on US demand. About 10% of Brazil’s export goods, for starters, head to the US. The numbers for Chile, India, Indonesia, Malaysia, South Africa and Venezuela are 13%, 12%, 9%, 8%, 6% and 34%. The emerging world is far better off with a powering US economy, even if that comes with a higher US dollar. It’s thus better authorities in the emerging world take steps that impress investors rather than whine about a high US dollar or wish for a weaker one.
