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20% Lost – This Chart Shows Malaysia The Champion In Reserves Fall



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Oct 16 2015
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Speculation is running high that the Federal Reserve is having cold feet about raising interest rate for the first time after rates held near zero since 2008 financial crisis. Hence, there could be no rate hike at all for the rest of the year. There’re also rumours that China is ready to devalue its currency again, to further boost its export.

 

But emerging markets are still struggling from both U.S. and China’s actions. Feds Chair Janet Yellen is indecisive about what to do while China is ever ready to push the button of yuan devaluation again. According to Institute of International Finance, investors withdrew a record US$40 billion from emerging stocks and bonds in the third quarter.

United States Federal Reserve Chair Janet Yellen

Girl Standing in Front of Giant China Yuan Note

Even China, a country with the world’s biggest reserves, has lost a record US$180 billion reserves in the third quarter due to interventions to support the yuan after a mid-August devaluation. While the country may not feel a pinch, smaller emerging countries are having sleepless nights as their reserves plunging.

 

In ASEAN, Malaysia leads the region when the local currency depreciates against the US dollar to as much as RM4.48 to a dollar on Sept 29th. It has since recovered to RM4.14 today, thanks to heavy intervention by central bank. Still, Malaysian reserves are down by US$22.7 billion (RM94.15 billion) or close to 20% this year.

Emerging Market Central Bank Reserves - 16Oct2015

Indonesia was the second worst performer in the same region when the country lost 9% of its reserves this year, erasing roughly US$10 billion. Thailand lost only 0.6% of its reserves for the same period while Philippines, surprisingly, actually added 0.6% to its reserves. Mexican and Malaysian reserves fell by over US$12 billion between July and end-September alone.

 

While Malaysia leads the emerging market as the champion that lost the most in reserves in percentage points, Nigeria took the second place when the country erased 12.2% of its reserves. Turkey and Mexico were the fourth and fifth worst performer – losing 8.1% and 7.1% respectively. Investors who ran away from Malaysia were primarily spooked by PM Najib Razak’s 1MDB scandal.

Holding Stacks of Malaysian Ringgit

Malaysian Ringgit Toast - Najib Razak 1MDB Scandal

However, not all emerging countries compiled by Reuters suffer from the China Yuan’s devaluation. Depending on their central bank’s strategy and macro economy, some countries have actually increased their reserves. Hong Kong’s reserves increased by 5.3% while India’s reserves added close to 10%.

 

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