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September 30, 2015

Investment Rates Ringgit, Rupiah Top Picks, Morgan Stanley

 Morgan Stanley Investment Rates Ringgit, Rupiah Top Picks

 Bank Indonesia @bank_Indonesia Unveils Measures Aimed to Stabilize the Rupiah
Malaysia’s ringgit and Indonesia’s rupiah are the most attractive emerging-market currencies to Morgan Stanley’s asset management arm after a selloff drove them to their lowest levels in 17 years.
The currencies are Asia’s worst performers this year as a slump in commodity prices hurts exports and the U.S. prepares to raise interest rates. Morgan Stanley Investment Management predicts the ringgit and rupiah will outperform peers and says developing economies are unlikely to face a repeat of the so-called Taper Tantrum of 2013 when $70 billion was pulled from their bond markets after the Federal Reserve signaled monetary stimulus would be cut.
“Malaysia is the cheapest from our medium-term foreign-exchange modeling in emerging markets, and Indonesia is second,” Jens Nystedt, managing director at the New York-based money manager, said by phone from Jakarta on Wednesday. “Given the selloff that we’ve seen in both currencies and bonds, you’re rewarded to take exposure at this point. India looks attractive but not as attractive.”

A Fed rate increase this year won’t surprise investors and further losses in emerging-markets exchange rates will be temporary as they’ve been declining over the past year, according to Nystedt. Narrower current-account deficits in Indonesia and India put them in a stronger position to endure outflows than two years ago, and both nations are candidates to exit Morgan Stanley’s “Fragile Five," he said. The list of markets most vulnerable to market disruptions includes Brazil, Turkey and South Africa.
“India and Indonesia have taken steps in the right direction given the new governments that have come in to being, and India in particular has been more bold when it comes to reforms compared to other markets,” Nystedt said. The money manager, which oversaw $403 billion at the end of June, also favors government bonds of the two countries along with Malaysian sovereign debt, he said.

The ringgit has lost 18 percent this year as a slump in crude oil prices hurt exports and allegations of corruption against Prime Minister Najib Razak spurred outflows. Najib has denied taking money for personal gain. The rupiah has weakened 14 percent and the rupee has fallen 5.1 percent in the same period, data compiled by Bloomberg show.

Foreign Ownership

Global investors hold 32 percent of Malaysian debt and 38 percent of Indonesia’s, official data show, the largest shares in Southeast Asia. Malaysia’s local-currency bonds handed investors a 2.6 percent return this year, compared with a 5.7 percent gain in Indian debt and a loss of 2.9 percent on Indonesian notes, according to indexes compiled by Bloomberg.
“In Malaysia the biggest risk that they have, in addition to political risk, is really the large ownership of the foreigners in the government bond market,” Nystedt said. “Given that we don’t expect a Taper Tantrum, we think we are being rewarded to take that risk at the moment.”
Futures contracts show a 32 percent chance for a rate increase Thursday, compared with 64.3 percent in December. If the Fed holds off and signals it may raise in October, that will provide short-term relief to markets, with Latin America and Eastern Europe benefiting the most as they tend to be most vulnerable, according to Nystedt.
The Fed will probably take a “dovish” approach amid subdued global growth and Morgan Stanley Investment Management expects only one increase of 25 basis points this year, he said, with the Fed funds rate rising gradually in coming years until it reaches 2.50 percent to 3 percent in 2018.
An increase this week will result in ‘‘a short-term selloff, but then we are taking away a major uncertainty and the market can recover somewhat,’’ he said. “If the Fed makes clear in that this is the only hike this year, and they’re going to be slow and keep rates low, that’s a scenario where emerging markets can stabilize after a day or two of adjustment.”

Morgan Stanley Investment Rates Ringgit, Rupiah Top Picks

  CEO James Gorman & @MikeBloomberg view the new digital sign together at #MorganStanley’s global HQ in #TimesSquare

South-East Asia's currencies are plunging like it's 1998

The rupiah and ringgit plumb depths unseen since the Asian financial crisis

This article was originally published in last week's print edition. However, since Tuesday, many South-East Asian currencies, as well as China's, have fallen sharply in value (see chart). Since this article is so relevant to the events of the past week, we decided to republish it on the blog:
NOT since Bill Clinton was president and Barack Obama was a law professor with a sideline in local politics have the beaches of Bali and Langkawi looked so inviting to Americans. Four years ago, a dollar fetched just over 8,500 Indonesian rupiah, and just under three Malaysian ringgit. Today a dollar is worth nearly 14,000 rupiah and almost four ringgit. Both currencies hit 17-year lows this summer, and kept falling (see chart).

In one sense, Indonesia and Malaysia are far from unique: declining commodity prices, the slowdown in China and the growing likelihood of an interest-rate rise in America have combined to make 2015 a miserable year for emerging-market currencies. Brazil and Russia are in recession, sending the real and the rouble falling. Turkey, with its slowing economy, huge current-account deficit and growing political instability, has seen the lira decline steeply; the Chilean, Colombian and Mexican pesos have all drooped.
But in Asia the rupiah and ringgit lead the race downwards, having fallen by 8.4% and 9.8% against the dollar this year—much further than the Thai baht (6.4%) and the Philippine peso (2.2%). Their problems are exacerbated not just by the Indonesian and Malaysian economies’ heavy dependence on commodities, but also by political ructions in both countries.
Start with commodities. The halving of oil prices over the past year has harmed Malaysia, which depends on oil for about 30% of its revenue. Indonesia is a net importer of oil, but other commodities still comprise around 60% of its exports—a worry, given that The Economist’s commodity index, which excludes oil, has declined by almost 20% over the past year. Thailand and the Philippines, in contrast, both have sizeable advanced manufacturing sectors: their top exports are computers and electronic components.
China’s slower growth and waning appetite for commodities have also been a drag on Malaysia and Indonesia. China is the top destination for exports from the Philippines too, but remittances from the millions of Filipinos working abroad have helped prop up domestic demand, thus cushioning the blow of falling income from exports.
Indonesia’s current-account deficit and the big share of its government debt in foreign hands will make it particularly susceptible to capital outflows in the event of a rate rise in America. (Foreigners also own a lot of Malaysia’s debt.) Even more worrying, much Indonesian borrowing, both corporate and sovereign, is dollar-denominated, meaning that as the rupiah falls the cost of debt service rises.
In response to these woes, Indonesia has fallen back on protectionism, as usual: in July it imposed import tariffs on a range of consumer goods, including coffee, cars and condoms. Despite much talk from the president, Joko Widodo, about upgrading his country’s infrastructure, little has been done. He came into office nearly a year ago with great promise, but some investors have started to wonder whether he is up to the job of pushing through the reforms his country desperately needs.
As for Malaysia, its foreign reserves look set to drop below $100 billion, depriving it of a much-needed buffer, and suggesting the government may have tried to prop up the ringgit. The woes of its prime minister, Najib Razak, who for months has been trying to dispel allegations of corruption, may intensify investors’ jitters.
The question now, for both countries, is how long the pain will last. Many predict that commodity prices will rebound; fewer predict when. In the meantime, depreciation should make their exports more competitive, but low commodity prices seem to be offsetting that gain. Indonesia is growing at the slowest pace since 2009. The falling currencies in both places are also stoking inflation. Whenever the Fed gets around to raising rates, these ailments will presumably worsen.

Source : the Economist 
Jakarta. Indonesia's central bank unveiled on Wednesday a set of measures intended to stabilize the country's beleaguered currency, which tumbled to its lowest levels since 1998 in the third quarter.
Key steps include the planned issuance of Bank Indonesia certificates in foreign currency and central bank intervention in the forward market for rupiah, in order contain expectations on how much more it might depreciate.
The focus of the package "is to maintain rupiah stability, manage foreign exchange liquidity, and manage supply and demand for dollars," said Perry Warjiyo, a Bank Indonesia (BI) deputy governor.
Saktiandi Supaat, head of FX research for Maybank in Singapore, said the moves could ensure greater dollar supply in the forward market to meet any increase in demand.
"Such measures could go some ways to ease pressure on the rupiah in the near term, but in the medium-to longer-terms, more far ranging reforms in the economic and financial realms are needed instead," he said.
Josua Pardede, an economist with Bank Permata in Jakarta, said the BI's measures, together with some announced earlier, are "really good to limit the rupiah depreciation, although the exchange rate would still be under pressure from US rate uncertainty."
Second worst performer
The rupiah is the second worst performer in emerging Asia this year, after the Malaysian ringgit. The rupiah has weakened more than 15 percent against the dollar, which the bulk of the loss coming in the third quarter.
On Tuesday, the rupiah touched a new 17-year low of 14,730 to the dollar. On Wednesday afternoon, it was trading around 14,650.
Earlier this week, Perry said the fundamental value of the rupiah for the rest of the year should be between 13,300-13,700 to the dollar.
BI Indonesia will also reissue three-month Bank Indonesia certificates and two-week reverse repurchase agreements.
"We want to drive [liquidity] from short-term instruments towards longer-term instruments because we're afraid excessive [liquidity] in short-term will create speculation. So we reopen these instruments," said Mirza Adityaswara, BI's senior deputy governor.
On Tuesday, the Indonesian government announced the second installment of its stimulus package to support economic growth, which include a deposit tax discount for exporters to keep their foreign earnings onshore. This policy will be implemented in coordination with the central bank.
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