Eyes on that weak Ringgit and Renminbi
It might be a good time for travellers visiting Malaysia but it is not so good for our neighbours across the causeway. Although a weak Ringgit might make Malaysia export-competitive and attractive to tourists, over long purchasing power of Malaysians are eroded. Malaysians visiting Singapore will find spending in Singapore 20% dearer since beginning 2014. And since SGDMYR is still stuck at 52-week high, MYR-weakening looks likely to continue.
Ringgit weakness standing out from ASEAN counterparts
The big picture does not look too good for the Ringgit either. Although as a basket, major ASEAN currency pairs USDSGD, USDIDR, USDTHB, USDPHP are also trending in favour of USD strengthening, the way USDMYR stands so far away from the crowd suggests something different for Malaysia i.e. instead of USD strengthening broadly as a global trend, something else internal is causing the Malaysian Ringgit to weaken as well.
There is something familiar to the Asian Financial Crisis that happened in the late 90s. The most glaring aspect is currency weakness. However with the stimulus programs that major central banks are pumping at the moment, dynamics are different this time.
Risks from borrowing; China is Malaysia’s biggest trade partner
Investors might want to look at corporate balance sheets closely. During the Asian Financial Crisis, companies borrowed excessively but could not repay when local currencies weakened drastically. This kind of stress affected banks first that quickly spread to other parts of economy in a chained risk-aversion.
Another direction to look at is the Chinese Renminbi. The way that ASEAN currencies especially Ringgit appear to be tied to the hip with RMB, the Ringgit might not hold still if RMB continues weakening.