Posted on 26 Jan 2015
THE fact that companies are using different strategies to hedge against the strong US dollar indicate they are on close watch for any advantage to be gained in ringgit terms.
“Our export side customers are generally keeping their hedging in shorter tenures while our import side customers are hedging more of their exposure on dips in the US dollar/ringgit exchange rate (so that they pay less in ringgit),” said Hong Leong Bank chief operating officer, global markets, Hor Kwok Wai.
Exporters are hedging on shorter tenures because they think the US dollar is strengthening and would therefore try for a better exchange rate for more ringgit.
To improve hedging costs, there had been more interest in simple forex option products, Hor said, adding that he was looking at the ringgit hitting 3.65 on broad US dollar strength as the US Federal Reserve prepared to hike interest rates.
“In Malaysia, many of the corporates are well-hedged; their foreign borrowings are quite small and there is still liquidity in the system,’’ said a senior banking analyst.
While there is hardly any new activity in the oil and gas (O&G) sector, the banks’ main customers – conglomerates, palm oil, transportation and consumer goods sectors – are still on steady performance.
“For the palm oil sector, they are not affected much as their cost is in the local currency while revenue is in US dollars.
“On the whole, the sentiment is more muted now,” the analyst said, adding that the US dollar/ringgit exchange rate on dollar strength was not expected to change anytime soon.
On the banking business across borders, the analyst said Indonesia was the main concern as its currency was still weak.
‘’Indonesia is an oil importer but coal prices are down,’’ the analyst said, adding that despite the new government doing the right things, the rupiah was still weak.
High US dollar borrowings means that debts of Indonesian companies have increased although there is a new ruling that they must hedge 20% of their borrowings in US dollars.
“Loan growth is slowing down in Indonesia,’’ the analyst said, adding that banking business in Thailand and Singapore was booming.
AllianceDBS Research noted that based on current plans, the Government remained committed to nurture growth by maintaining its development expenditure.
It sees that the postponement of electricity tariff in 2015 would benefit the cement and steel industries although the cement sector is plagued by intense competition and the steel sector by weak prices.
The Government’s commitment to roll out the MRT Line 2, LRT 3, Pan-Borneo Highway and High-Speed Rail is important for the sustainability of the construction industry.
In the O&G sector, projects with approved final investment decision, including Refinery and Petrochemicals Integrated Development project with an estimated capital expenditure of RM27bil, will proceed as planned, benefitting a host of companies providing parts and services to this industry.
While the Government is struggling to maintain growth and development, the call for government-linked companies and government-linked investment companies to invest domestically should be heeded seriously.
Likewise the call for increase in domestic tourism and consumption of local goods.
Everybody should contribute their part to make sure that the plan works.
