Malaysia Sees Signs of Recovery

One of Asia’s biggest underperformers finally appears to be on the road to recovery. After almost three years of heightened political unrest, low commodity prices and a slump in investor and consumer confidence, it appears that investors are now returning to Malaysian financial markets. In addition, there now also seems to be a renewed sense of optimism surrounding the country’s growth outlook.

If one had simply examined Malaysia’s economic health over the last few years from a gross domestic product perspective, one might not have considered Malaysia to be so badly damaged. Indeed, the Southeast Asian emerging economy managed to register annual GDP growth of 4.2% in 2016, International Banker reported.

However, confidence in Malaysia’s markets in recent years has been severely dented following the revelations of alleged large-scale misappropriation of funds from state development fund 1Malaysia Development Berhad.

Along with the collapse in global commodity prices, the scandal sent Malaysia’s currency, the ringgit, into a virtual freefall—between 2014 and 2016, it shed almost 40% of its value. It was also the worst Asian currency performer between October 2016 and March 2017, as expectations over tighter US monetary policy and the election of Donald Trump triggered an exodus of global investment funds from emerging markets.

The ringgit appears to be on the rebound this year, however, having reversed course in January after trading at its lowest level against the dollar since 1998.

Bank Negara, Malaysia’s central bank, initially responded to the ringgit’s precipitous decline by implementing a crackdown on offshore trading of non-deliverable forward contracts in November, in a bid to minimize speculative trading.

However, this move also had the unintended consequence of inducing a withdrawal of interest from Malaysia’s financial markets by global investors, who found it difficult to hedge their exposures to Malaysian assets.