Malaysian ringgit forecasts are being raised for the first time since September as rebounding oil prices limit damage to the nation’s finances.

The median year-end projection of 25 strategists rose 1.4 percent in May, the first gain in eight months, according to a Bloomberg survey. That’s more than for any other major Southeast Asian currency. The ringgit has rallied 2.4 percent this quarter in Asia’s best performance after the Taiwan dollar as Brent crude increased 18 percent.

Malaysia’s prospects have improved since the ringgit dropped to a six-year low in March on concern the oil-exporting nation’s current account would slide into deficit for the first time since 1997. BNP Paribas and Malayan Banking raised estimates for Malaysia’s 2015 expansion after first-quarter growth beat estimates on May 15.

“The Malaysian economy proved to be very resilient through the first quarter,” said Jonathan Cavenagh, a senior currency strategist at Westpac Banking in Singapore. “There’s still probably some downside risk to the trade numbers given how weak oil prices were late last year and earlier this year, but the market’s probably more prepared to look through that now.”

Bonds rally

Malaysia’s $313 billion economy expanded 5.6 percent last quarter, compared with the 5.5 percent median estimate in a Bloomberg survey and a revised 5.7 percent in the previous three months. The country outperformed neighbors Indonesia and Thailand, where gross domestic product increased 4.71 percent and 3 percent, respectively.

The median year-end forecast for the ringgit is 3.69 a dollar, compared with 3.74 on April 30. That implies a decline of 2 percent from Monday’s closing spot rate of 3.6145.

The reassessment of the ringgit has benefited Malaysia’s local-currency sovereign bonds, which returned 1.3 percent in three months in Asia’s best performance, according to Bloomberg indexes. The yield on the notes due September 2025 is 3.89 percent, compared with 2.21 percent for similar-maturity Treasuries, data compiled by Bloomberg show.

“Malaysian bond yields at close to 4 percent make them an attractive yield play,” said Manu George, Asian fixed-income investment director at Schroder Investment Management (Singapore), whose bond team oversees $10 billion. “We expect that this rally could go on as long as US interest rates are held low for longer and oil prices do not relapse to their levels of last year.”

PineBridge underweight

Brent crude fell 49 percent in the second half of 2014 and touched a six-year low of $45.19 a barrel on Jan. 13. It’s rebounded 44 percent since then to $65.06, brightening the prospects for Malaysia, which derives 22 percent of state revenue from energy-related sources.

State finances won’t bear the full brunt of the price drop last year until this quarter and the next because the price of liquefied natural gas typically lags behind oil by as much as six months, according to PineBridge Investments. LNG made up 8.4 percent of Malaysian exports in 2014, official data show.

“We would expect the current strength in the Malaysian ringgit to be transitory,” said Anders Faergemann, who helps oversee $3.7 billion of emerging-market debt as a senior fund manager at PineBridge in London. “While we hope that the worst is over for Malaysia on the energy price front, we would like to see some more clarity on the revenue impact before changing our stance,” he said, adding that PineBridge holds less of the country’s debt than the industry benchmark it follows.

Commodity prices

The first-quarter growth report prompted Maybank to raise its forecast for Malaysia’s 2015 expansion to 4.9 percent from 4.5 percent, while BNP Paribas increased its estimate to 5 percent from 4.5 percent. GDP rose 6 percent last year.

The nation’s current-account surplus widened to 10 billion ringgit ($2.8 billion) in the first three months of the year from 5.7 billion ringgit in the previous quarter, which was the smallest excess since 2013. Foreign-exchange reserves have recovered slightly to $106.2 billion since falling to a four- year low of $105.1 billion in March.

As well as the oil rebound, the prices of some of Malaysia’s other main commodity exports are improving. Palm oil has risen 3.8 percent since reaching this year’s low on April 29, while rubber is up 10 percent in six weeks.

“Many of the factors that undermined the ringgit, the narrower current-account surplus and lower foreign-exchange reserves, were tied to the weakness of the commodity markets,” said Dwyfor Evans, a Hong Kong-based macro strategist at State Street Global Markets. “If the bounce in commodity prices is sustained, then the ringgit should be able to stabilize.”

Bloomberg

The post Ringgit Forecasts Upgraded as Malaysia Rides Oil Rollercoaster appeared first on The Jakarta Globe.

Dollar sukuk issued by Indonesia are outperforming those of Malaysia, boding well for the government’s plan to tap the global market for a fifth year.

Indonesia’s existing notes maturing in 2018 through to 2024, which are rated the lowest investment grade by Moody’s Investors Service, returned 3.1 percent to 5.5 percent this year, data compiled by Bloomberg show. Three of Malaysia’s higher-rated sukuk due from 2015 to 2021 gained 0.3 percent to 1.8 percent.

Investors are banking on Standard & Poor’s joining Moody’s and Fitch Ratings in upgrading Indonesia from junk amid President Joko Widodo’s fiscal reforms, according to RHB Research Institute. Malaysia lowered borrowing costs in its sale of $1.5 billion of Islamic bonds last week, attracting $9 billion in bids even as the nation’s finances are under pressure from falling oil prices and a warning from Fitch of a possible downgrade.

“The Indonesian government could take advantage of the still favorable market conditions to price the sukuk in their favor,” Fakrizzaki Ghazali, a credit strategist at RHB Research in Kuala Lumpur, a unit of the nation’s fourth-largest bank, said by e-mail on Wednesday. “They may consider issuing to lengthen their maturity profile for dollars by locking in long-term rates.”

Supply shortage

Indonesia is seeking to return to the global sukuk market in the first half of this year. It last sold $1.5 billion of 10-year notes with a coupon of 4.35 percent in September. The yield has dropped 41 basis points to 3.94 percent in 2015. State-owned airline Garuda Indonesia is also planning to issue $500 million in the nation’s first corporate global sukuk.

Indonesia’s Islamic notes are also outperforming the Bloomberg USD Emerging Market Sovereign Bond Index, which has returned 3 percent in 2015. The sukuk due in 2019 are leading gains, with the yield falling 72 basis points this year to 2.63 percent. It dropped to 2.61 percent on April 13, the lowest since the 2013 issuance.

The Southeast Asian nation has benefited from a slump in crude as a net oil importer, helping the government narrow its current-account deficit. Conversely, as Asia’s only major energy exporter, Malaysia has seen its surplus in the broadest measure of trade dwindle.

Malaysia sold 10- and 30-year Islamic bonds at coupons of 3.04 percent and 4.24 percent, respectively, as it sought to refinance the $1.25 billion of sukuk due in June this year and lengthen maturities. Both were priced below the initial target spreads over US Treasuries.

Demand for Malaysia’s securities was also a reflection of the lack of supply as Shariah-compliant investors chase more sukuk in which to park their excess funds, according to Union Investment Privatfonds in Frankfurt. Ernst & Young forecasts global Islamic banking assets will rise to $3.4 trillion in 2018 from about $1.7 trillion in 2013.

‘Feels right’

“Malaysia is still a very well-rated credit and there’s a very small level of supply of high-grade sukuk,” Sergey Dergachev, who helps oversee $13 billion of emerging-market debt as a senior money manager at Union Investment, said by e-mail on Tuesday. “Islamic funds and Islamic banks are flush with liquidity, and they need to invest in new instruments.”

President Widodo plans to spend the equivalent of $425 billion over the next five years to build dams, railways and airports as he aims for 7 percent economic growth by the end of his term in 2019. The central bank forecasts growth of 5.4 percent to 5.8 percent this year, faster than last year’s 5.03 percent that was the slowest since 2009.

“I fully expect Indonesia to issue dollar sukuk in the second quarter,” Ezra Nazula, who manages $2 billion as Jakarta-based head of fixed income at Manulife Aset Manajemen Indonesia, said by e-mail on Wednesday. “The timing for new issuance feels right given the low US Treasury yields and continued global demand for high-yielding emerging-market assets.”

Bloomberg

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