Analysts: Greece fallout unlikely to affect Malaysia, concern about ringgit

Wong: ‘There’s a substantial amount of foreign holdings on MGS.’

PETALING JAYA: The fallout from Greece’s possible exit from the European Union following its debt crisis is unlikely to have a contagion effect on the Malaysian economy for now.

But the concern is more on Fitch’s credit rating of Malaysia that could impact the ringgit, which is seeing minimal effects from the Greece problem.

Areca Capital chief executive officer Danny Wong felt the risk of a contagion effect on the Malaysian economy was “quite removed”.

“There is a small chance it will affect the rest of the world. but indirectly through perhaps a programmed sell-down by fund managers due to Greece’s exit because they are overweight on developed countries and underweight on emerging markets,” he said.

Malaysia’s equity exposure was quite limited at the moment, he added. But the worry lies in possible selldown on Malaysian Government Securities (MGS) bonds.

“There’s a substantial amount of foreign holdings on MGS. If they sell down, the risk is on whether we have the reserves and funds to cushion this. Even if we have, what about the currency side? Will it go down further?” he said.

Wong thinks the impact on the direct economy would be minimal, especially since the country does not have products with exposure to Greece.

A majority of Asian markets recorded losses following the Greek government’s decision to shut its banks for a week on Sunday night, and put capital controls in place, limiting withdrawals to 60 euro a day. This ensued from the European Central Bank’s decision to cap liquidity on Greece’s bail-out plan a day before.

MIDF Research said the Greece problem would have little fundamental impact to Malaysia’s economy and the local financial market except for a negative transitory shock in the short term.

With just yesterday’s and today’s trading figures to be included, the cumulative outflow for June would exceed RM3bil.

“For 2015, last week’s selldown increased the cumulative net foreign outflow to RM8.7bil, surpassing the RM6.9bil outflow for the entire 2014,” MIDF Research said.

This was significantly higher than the RM372.4mil sold during the previous week. Foreign investors have been net sellers on Bursa Malaysia for nine consecutive weeks.

“It has been the longest stretch of foreign withdrawal since the last three months of 2013. Last week, foreign investors sold equity listed in the open market on Bursa, excluding off-market deals amounted to RM824.7mil on a net basis,” said MIDF.

The capital controls put in place by Greece will, to a degree, cause some investor aversions to risks, said Fortress Capital CEO Thomas Yong.

He said: “Although the Greece problems have limited impact on Asia, investors are watching closely for ringgit outlook downgrade by Fitch. Certainly a downgrade will be negative in terms of foreign equity flows.”

As for equity, Wong said he would “buy on any sharp selldowns”. “It’s more a sentiment issue and not really a direct impact,” he said.

On concerns that it would trigger another round of exit by foreign funds, he said: “I’m not too worried about this as we have gone through so many ups and downs. People tend to forget the long-term strategy. As a fund manager our long-term strategy doesn’t change but we might have a bit of tactical move to switch counters for risk management purposes. We are still 80% invested,” he said.

He added that a possible downgrade from Fitch was not warranted, given Malaysia’s current data and fundamentals.

“When oil price came down, there were concerns of how it will affect our trade surplus and current account with the possibility of a twin deficit. But now, almost a year since oil price started to come down, our trade surplus is still big enough to cover that. So that proves that we are not that heavily dependent on oil trade. Yes, it affected us on the budget side, but the GST and subsidy rationalisation is enough to cushion that. And now oil is above the level that was used in the revised budget level,” he said.