Malaysian capital markets stable on robust commodity prices, small exposure to Russia and Ukraine

KUALA LUMPUR, Feb 25 — Malaysia’s capital markets have remained stable despite the current weak global risk sentiment as robust commodity prices and low economic exposure to Russia and Ukraine provide shelter.

RHB Research said that Malaysia, along with Indonesia and Thailand, has benefited from the “positive terms of trade shock emanating from elevated food and energy prices.”

“Note that Malaysia’s overall trade balance is accelerating quite a bit, with the energy trade balances looking resilient. In addition, most of Malaysia’s exposure to foreign bank lending is to the US, UK, and Japan and most likely very limited to Russia,” it said in a research note today.

“Malaysia’s direct trade exposure to Russia and Ukraine is quite small. We do recognise that the indirect impact on Malaysia from geopolitical risks spreading to much of Europe and slowing trade and bank lending from the continent to Malaysia can’t be under-emphasised as a downside risk to our base case neutral capital flows assessment,” it added.

Within Southeast Asia, RHB Research said net capital flows to the Malaysian, Indonesian, and Thailand capital markets will be impacted relatively less compared to Singapore (which is highly correlated to China’s markets) in the current market environment.

On the currency outlook, the research house has maintained its tactical long US dollar (USD)/ringgit view with its end of first quarter (Q1) forecast of 4.30 remaining intact while the end-2022 USD/ringgit forecast of 4.15 remains unchanged.

“In the near term, a strong US dollar and risk aversion towards emerging markets (EM) are the main drivers of our USD/ringgit view,” it said.

RHB Research has also maintained its average MGS (Malaysian Government Securities) 10-year yield forecast of 3.55-3.65 per cent in the first half of 2022, followed by an average of 3.60-3.70 per cent in the third quarter and 3.65-3.75 per cent in the fourth.

“Our forecasts are based on a 25 basis points (bps) hike in the overnight policy rate (OPR) in the second half of 2022 and the US Federal Reserve Bank (FED) raising the federal fund rates (FFR) three times by 25 basis points each this year. There is scope for the yield to slide if the US and its allies decided to retaliate in greater coverage and magnitude,” it added. — Bernama