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Business Times
Published February 11, 2005
More hot money from S'pore flowing across the Causeway
By SIOW LI SEN
(SINGAPORE) Funds from Singapore are pouring into Malaysia in anticipation of a ringgit re-peg. Latest data from Bank Negara Malaysia shows that inflows from Singapore rocketed to RM24.52 billion (S$10.6 billion) for the first nine months of 2004, against RM15.2 billion for the whole of 2003.
'It's the peg thing . . . as a foreigner you can buy anything, except cold cash,' said Chia Woon Khien, DBS Bank senior market strategist.
'It's pure speculation but it's what people think,' said Hans Goetti, Citigroup Private Bank senior portfolio counsellor for Asia Pacific and Middle East.
Mr Goetti was referring to anticipation that if China revalues its currency, Malaysia is likely to let the ringgit appreciate. 'Even if China does not move, if you're looking for Asian currencies to appreciate against the US dollar, the speculation is on that the ringgit is one of them,' he added.
The ringgit was pegged in 1998 at RM3.8 to one US dollar.
The biggest inflows for the Jan-Sept 2004 period were from the United Kingdom with RM24.53 billion, beating by a whisker Singapore's RM24.52 billion, and Hong Kong's RM23.39 billion.
The inflows are parked in financial assets classified as portfolio investment by Bank Negara. Portfolio investment includes equities, Malaysian government securities, corporate securities, money market instruments and financial derivatives.
In recent years, despite a relatively poor performance by the Malaysian stock market, the incessant speculation about a re-peg of the ringgit leading to its appreciation has seen hot money flowing in.
The Kuala Lumpur Composite Index has trailed its Singapore counterpart for two years running with returns of 20.28 per cent and 9.86 per cent in 2003 and 2004 respectively.
These returns were significantly lower than the Straits Times Index's corresponding annual increases of 31.58 per cent and 17.09 per cent.
But some brokers expect Malaysian stocks to perform strongly this year.
Mr Goetti believes the likely bull markets in 2005 are in South-east Asia, where increasing domestic demand is making a big difference. He said one of the most attractive locations will be Thailand, followed by Malaysia.
Besides Malaysian stocks, interest in Malaysian government securities has attracted quite a lot of funds, said one Kuala Lumpur source.
In the second half of last year, interest in Malaysian financial assets was quite strong, the source said.
The price of 10-year Malaysian government securities has risen by 11.6 per cent over the past 12 months, said Ms Chia of DBS.
Last November, a research note by DBS said reserve money rose 12.3 per cent, the highest since February 2000, largely driven by a sharp rise in external reserves. As at mid-November, foreign reserves stood at US$60.9 billion, up US$2.4 billion from mid-October.
The note said the surge in reserve money and monetary aggregates will add to the pressure to re-peg. The continued strong economic growth might also cause Bank Negara to raise domestic interest rates to deal with inflationary threats, possibly in the second half of this year, it said.
Ms Chia feels the situation is worrying.
She thinks that if the ringgit is re-pegged or allowed to float, it might cause a sudden surge of outflow of the hot money or create more inflows from speculative traders.
'Traders look for (bond) returns, which have appreciated quite a lot, and in a re-peg, they might get another 5 per cent. They might want to get out,' said Ms Chia.