Reserves Position to Finance Retained Imports Eased to 7.5 Months

The international reserves of Bank Negara Malaysia (BNM) increased further by US$0.4bn to US$101.9bn as at 30th November 2017, compared with US$101.5bn as at 15th November 2017. The country’s reserves also improved in Ringgit terms, rising from RM428.9bn as at end-October to RM430.4bn as at end-November 2017. The current level of reserves is sufficient to finance 7.5 months of retained imports (7.6 months as at endOctober), whereas reserve coverage of short-term external debt remained unchanged at 1.1 times.

The improvement in reserves during the month may be attributed partly to higher net export earnings, where trade surplus in October widened to RM10.6bn, bringing the cumulative trade surplus for the first ten months to increase by 14.4% yoy to RM80.2bn (RM70.1bn in 10M16). This was attributed to the higher demand for manufactured goods products from overseas, as well as increase in exports of crude petroleum, which was in line with the recovery in global oil price. With global semiconductor sales continued to remain robust in the month of October, where Semiconductor Industry Association (SIA) revising higher the industry forecast by 7% to US$437.3bn, higher than June projection of an increase of 2.7% (US$408.7bn in 2017), we expect higher exports of Malaysia E&E products as well as sustained oil prices to continue to support trade surplus in 2018.

In recent weeks, Ringgit has appreciated against a weaker US$, partly due to improving country’s fundamentals (such as real GDP growth and current account surplus posted in 3Q17 as well as rising reserves). Ringgit has strengthened from RM4.23/US$ as at end-October to RM4.09/US$ as at end-November. However, with expectation of possible 25 bps federal funds rate hike by the US Federal Reserve (US Fed) in the next FOMC meeting on 12-13th December, we believe Ringgit will continue to trade around the RM4.05-4.10/US$ in the weeks ahead. In October, US unemployment rate improved by 4.1%, the lowest level in 17 years.

Domestically, the November data for foreign holdings of Malaysian bills and bonds has yet to be released by Bank Negara Malaysia (BNM), but we believe will likely improve slightly from the decline of RM2.8bn in October, attributable to foreign interests in Malaysian Government Securities (MGS) and private debt securities (PDS). On the other hand, the short forward position by BNM also improved from US$12.2bn in September to US$11.9bn in October.

Source: Affin Hwang Research - 8 Dec 2017