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Malaysia Meltdown: Asian Currency Crisis 2.0 Sends Ringgit, Stocks, Bonds Crashing
When China went the “nuclear” (to quote SocGen) devaluation route earlier this week in a last ditch effort to rescue its export-driven economy from the perils of an increasingly painful dollar peg, everyone knew things were about to get a whole lot worse for an EM currency basket that was already reeling from plunging commodity prices, slumping Chinese demand, and the threat of an imminent Fed hike.
Sure enough, EM currencies from Brazil to South Korea plunged, and monetary authorities - unsure whether to play down the move or cry foul - scrambled to respond.
With some Asian currencies already falling to levels last seen 17 years ago, some analysts fear that an Asian Currency Crisis 2.0 may be just around the corner.
That rather dire prediction may have been validated on Friday when Malaysia’s ringgit registered its largest one-day loss in almost two decades.
As FT notes, “sentiment towards Malaysia has been damped by a range of factors including sharp falls in global energy prices since the end of June. Malaysia is a major exporter of both oil and natural gas, with crude accounting for almost a third of government revenue.” The central bank meanwhile, "has opted to step back from intervening in the market in response to the falling renminbi, unleashing pent-up downward pressure on the ringgit.” That, apparently, marks a notable change in policy. “The most immediate challenge is the limited scope of Malaysia’s central bank to step in,” WSJ says, adding that “for weeks, it tried to stem the currency’s slide, digging into its foreign-exchange reserves to prop up the ringgit and warning banks from aggressively trading against its currency."
Surveying the damage, here's the one-day:
And the one week:
And the one month:
To be sure, capital has been flowing the wrong way in Malaysia for quite some time. As Bloomberg reminds us, "foreign funds have dumped about $3 billion of the nation’s shares this year as Prime Minister Najib Razak grapples with allegations of financial irregularities at a state investment company."
Indeed, concerns around capital outflows may have come to a head in today's move. Here's a look at where things stood in July (it's gotten worse since, as FX reserves fell below $100 billion by the end of last month):
And among Asian currencies, the ringgit is especially sensitive changes in "sentiment":
Clearly, falling FX reserves limit the BNM's ability (not to mention willingness) to arrest the slide.
As for specific catalysts for Friday's move, it looks like a $10 billion bond maturity may have contributed - i.e. investors converted the proceeds from ringgit back into dollars.
"It’s a bit of vicious cycle", Saktiandi Supaat, Singapore-based head of FX research at Maybank, told Bloomberg over the phone. He also remarked that it doesn’t seem fundamentally driven but rather sentiment-based or even a speculative move.
And it wasn't just the ringgit, Malaysian equities and bonds plunged as well, with stocks turning in their worst two week performance since Lehman.
So while China may have succeeded in jawboning/intervening the yuan back to some semblance of (temporary) stability, the global reverberations look to have just begun.
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Long Tums and Alka Selzer!
That rather dire prediction may have been validated on Friday when Malaysia’s ringgit registered its largest one-day loss in almost two decades.
Malaysia's ringgit.............................LOL
That can't be right.........................sounds like RIGIT LOL
nobody coulda seen it comin'
according to usa monetary authorities zirp 4evah, qe infinity, and outrageous debt and deficit spending make a currency stronger. maybe they should try that. /s
It takes a global village .... to run a good Ponzi !
I'm staying in malaysia and I'm guessing the economy will take a hit in the not very distant future. On the good side, my rent in USD is falling nicely but groceries could easily rise. The government is almost all muslim Malaysian but almost all businesses are chinese malaysian. Amazing country on the whole though and very painless to live here.
I've never lived there but I've been 8 times since 2010. Penang is an incredible place with awesome food and culture.
I've lived here for five years. The country is beautiful, peaceful and inexpensive.
We lived in Ipoh for several years. Loved it, loved the whole country and the inexpensive travel. If I could convince the wife, we would retire there soon. She doesn't want to be 36 hours from home.
A Maylasian market analyst on staff Tylers?
Sunday morning is only a weekend away, PBOC seems to be very active 24/7 , burning up the weekends.
Sweet.
Same beggar thy neighbor policy for what 20-30years competing with china...
Let's get this puppy rolling. I love when paradigms crash. In this case, an economic crash is one of the few things that will reveal a greater version of the truth to the 'Americans.' It may be painful, but I suppose I like to live in a world where some truth shines through. Imagine that.
Might be a good time to get into the Malaysia My Second Home program.
That's a damn good thought. 20% less expensive than it was last month. Excellent medical care, and we rented a 4 bedroom condo with beautiful landscaping and pool, fitness room and an easy walk to local shopping for less than 400 bucks a month. You can find similar deals in Penang, but I think my favorite Malaysian city is Melaka.
Meltdown - it's what's for breakfast, get used to it...
Yet ZH pointed fingers at Brazil as the biggest loser with China devaluation of the yuan. USDBRL -1,5%, dollar losing here today.