Weakening currencies of emerging economoies is trend is mainly attributable to the widespread capital withdrawal from emerging Asian economies back to developed nations – in particular, the United States.. Asia’s economic fundamentals (now) are much stronger than in prior crisis periods (1997/98 and 2008/09) and they are backed by a more stable and better regulated financial sector. 98 crisis not going to happen. o stresses that Malaysia’s strong foreign reserves, high national savings and low external debt would enable the country to absorb external shocks and reduce risks of external financing sustainability. The rising expectation of the United States tapering off its QE soon has contributed to a spike in US bond yields and lured capital back to the world’s largest economy. This development is expected to continue prompting investors to shun emerging market economies, including those in Asia, that had over the past few years appeared so attractive to them. Less stimules means economy improved. , which will take regional currencies and equity markets lower, in the coming months. There will be further rise in financial-market volatility, in asia markets. Countries with what economists call “twin deficits”, involving the current account balance and fiscal (or government’s budget) position, will be particularly susceptible to capital reversals.
“The fiscal concerns and the risk of Fitch (Rating) downgrading Malaysia’s rating could trigger net outflows from the bond market, hitting the ringgit further,” Sathirathai points out in his report.
Fitch had earlier this month downgraded its outlook on Malaysia from “stable” to “negative”. The international credit rating agency’s move was prompted by what it saw as deteriorating prospects for budgetary reform and fiscal consolidation to address weaknesses in public finances in view of the Government’s poor performance in the 13th general election in May.
Due to high foreign shareholding (of more than 47% in...
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