KUCHING: The potential outflow of foreign funds from Malaysia cound lead the ringgit to depreciate further, cites AmResearch Sdn Bhd (AmResearch).
“We expect the overall reserves at Bank Negara Malaysia to deplete further in the months ahead as outflow of funds persist,” outlined AmResearch economist Patricia Oh in a research note on the matter.
“As the US economy gathers pace, the US Federal Reserve is expected to continue unwinding its asset purchase programme in the subsequent Federal Open Market Committee (FOMC) meetings during the year.
“As of January 2014, the size of the latest QE is approximately US$1.28 trillion, which is about the amount of QE2.Asset purchases under QE2 which ended in June 2011 had amounted to US$600 billion.
“In the interim period,the ringgit could potentially depreciate by at most another 3.8 per cent to approximately RM3.45 should the QE continue to unwind and the overnight policy rate (OPR) is capped at three per cent level.
“Domestically, we believe that policy adjustment will be retained until the economy signals sustainable domestic growth amidst stable price environment,” she said.
Meanwhile, Alliance Research Sdn Bhd’s economist Manokaran Mottain concurred with Oh that there could be further outflow of foreign capital.
He said foreign holdings of Malaysia’s Government Securities (MGS) in December 2013 continued to tick down, from 45.1 per cent in October 2013 to 44.9 per cent in December 2013.
He believed that a further sell down is likely given the rising 10-year MGS yield from 4.13 per cent at the end of December to 4.25 per cent at the end of January 2014.
He observed that on equity portfolio holding, foreign institutional investors remained as net sellers of Malaysian equities forthe fifth time in six months, registered a net outflow of RM3.6 billion in January 2014.
He noted that net outflows were RM1.6 billion for December 2013 and RM3.1 billion for October 2013.
Manokaran said the outflow was in line with the research firm’s estimate on the decline of the market capitalisation of Bursa Malaysia, which fell further to RM1.64 trillion at the end of January compared to RM1.66 trillion on January 15.
He noted that since then, the ringgit has depreciated by 1.51 per cent drop to close at RM3.3364 per one US dollar on January 30 from RM3.2868 per US dollar two weeks ago.
Therefore, the research firm remained cautious on the near term outlook of the country’s international reserves and the equity market.