Posted on 10 Sep 2015
Moody's views were presented at its inaugural "Inside Asean –
Spotlight on Malaysia" event held on Aug 27, which focused on the impact
of heightened market volatility on Malaysia's credit markets. The
report also includes the results of audience polling on key issues for
the country
.
"We see ringgit depreciation as a symptom of declining export revenues,
capital outflows, and worsening investor sentiment toward Malaysia,"
said Moody's vice-president and senior research analyst Rahul Ghosh.
"These are negatively impacting key credit buffers such as the
current account surplus, foreign reserve coverage, and economic growth
trajectory," he added.
The ringgit has depreciated by about 25% against the US dollar in the past 12 months, noted Moody's.
Although Moody's expects its rated corporates – which have natural hedges and better flexibility despite external funding exposure – to weather the weaker ringgit, lower Brent crude and palm oil prices will weigh on commodity producers' cash generation and earnings.
Moody's polling of over 150 attendees at its event offers insights into what some of the country's largest investors, intermediaries and debt issuers consider key issues for Malaysia going forward.
The majority of market participants surveyed by Moody's expect the ringgit and oil prices to stabilise; 44% expect the ringgit will remain range-bound between RM4.00-RMR4.50 against the dollar, and 62% expect Brent crude to average US$45-US$55 per barrel in the coming 12 months.
Finally, the polling showed that market participants still view
China's growth slowdown as the largest risk for Malaysian banks,
followed by ringgit weakness.
From Moody's perspective, Malaysian banks' direct exposure to China is
limited, but domestic asset quality may be pressured, given Malaysia's
export exposure to the mainland.
In terms of foreign exchange vulnerability, Moody's noted that foreign currency loans and foreign currency borrowings by Malaysian banks form a modest share of their overall balance sheets.
