Trump win hits Asean markets

Malaysia is celebrating strong economic growth. Source: Pixabay

Donald Trump’s electoral victory in the US reverberated around Asean’s markets with the Malaysian and Indonesian central banks trying to defend their currencies as investors sold up. 

Investors revised down their growth expectations, with a growing consensus that Trump’s economic policies would be inflationary and push US rates up faster than previously thought, driving funds away from emerging markets and into dollar-based assets.

Bank Negara Malaysia would not peg the ringgit despite the recent volatility the currency had been facing due to the external environment, said Governor Muhammad Ibrahim.

“The ringgit should not be determined by speculative positioning. Its level must be supported and dictated by the underlying fundamentals as such transactions are contracted by the banks on a daily basis.

“That’s how the prices of the ringgit should be determined,” he said. He added that the Malaysian economy grew 4.3 per cent in the third quarter. “Please don’t price the ringgit out of sync with what the fundamentals are. That is very important.

“This might entail certain guides that banks should not do certain things temporarily, not permanently, just to calm the market. I think that is a very important part because we did not want the market to be dictated by matters that have nothing to do with Malaysia’s economic fundamentals,” he said.

The ringgit plunged to its weakest point in more than 12 years in offshore markets on Friday as investors dumped government bonds, while the spot rate barely moved as the central bank kept a tight grip on the onshore market.

Yields on benchmark 10-year treasuries have risen 41 basis points in two days as investors scramble to readjust positions.

Asean is vulnerable to hot money outflows, and investors have been unsettled by the deep uncertainty over how American policy shift under Trump.

The Malaysian ringgit sank to more than 12-year lows in the offshore market.

The ringgit’s one-month non-deliverable forwards (NDFs) lost up to 3.7 per cent in the offshore market. By contrast, the ringgit spot barely moved at 4.27 per dollar with liquidity remaining thin. As a result, the dollar/ringgit’s NDFs premium over the dollar/ringgit spot increased to 0.2695, the widest since at least April 2008, Reuters reported.