Anybody Home?

The ringgit continued its slide, falling to 3.472 ringgit to the dollar Thursday. The dollar traded at 3.459 ringgit on Wednesday and at 3.305 ringgit at the beginning of this year. The news of the government backtracking on IPP windfall tax did nada for the currency nor the markets. That's because foreign and local share investors have been cashing up big time over the last 3 months. All things being equal, this so called US-led recession is hitting Malaysia pretty mildly. Is Malaysia possible economic shocks. The country is dependent on oil revenue for funding public spending, and the recent budget have widened the projected fiscal deficit.

Oil prices have dropped some 40% from its high this year. Have investors decided that Malaysia is a net beneficiary or not in this matter? Or it does not really matter? Or are we plagued by bigger issues. I think we are plagued by bigger issues.

What about the budget deficit, which is projected to hit 4.8% of GDP. Malaysia's economic growth will slow to 5.3% this year from 6.3% in 2007, according to Citigroup. That is still not bad at all considering the global economic situation. Foreign investors, fearing that the ballooning budget deficit could prompt a downgrade in the sovereign credit rating, have been selling Malaysian debt, including corporate issues. Foreign holdings of Malaysian debt, including issues by the government and by private enterprises, fell 17% to 104.8 billion ringgit between April and June. Overseas investors have stepped up sales of Malaysian bonds in recent weeks.

Despite the facts, I still do not think foreign investors are selling bonds because of the deficit. If anything, it may have something to do with Bank Negara holding rates steady. Judging on interest rate differentials and the current political uncertainty, these two factors seem to be dominating the scene. In fact, its the latter which is making people edgy. There are so many choices for investors, why would anyone want to consider Malaysia at this point in time. We are barely registering in the MSCI weighting, same goes for Thailand.

Investors are not really slanted for any one side of the political spectrum, they just want someone to take the lead, someone to be in charge. Is it holding onto power, or barely hanging onto power, who knows, and if investors anywhere are not able to make that call, who will be willing to park their money in ringgit assets.

This naturally has made the ringgit and local shares to be grossly oversold. I believe in terms of value in respect of profit growth and dividend yield, the Malaysian markets has gone into oversold level since it broke past 1,150. Even though something that is cheap may not be picked up because of over-riding factors.

The uncertainty, political high-handedness and internal squabbling have all contributed to exacerbate the situation. Things are so fluid and frustrating now. We are all shrugging our shoulders. Sorry, no smart conclusion this time around.

p/s photos: Amanda Strang