PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

7 June 2010

Foreign Exchange Reserves Fell To US$95.5bn As

At 31 May

◆ The foreign exchange reserves fell by US$0.6bn or RM2.0bn in 2H May to US$95.5bn or RM312.2bn as at
31 May, compared with an increase of US$0.1bn or RM0.3bn in 1H May. This suggests that the repatriation of export
proceeds was offset by some outflow of foreign portfolio funds and payment of import bills. As it stands, the foreign
portfolio investment in fixed income papers slowed down to RM8.5bn in April, from +RM12.9bn in March and we expect
it to fall in May. The increase pushed up total holdings in fixed income instruments by foreign portfolio investors to
RM93.7bn at end-April, the highest in 21 months and from RM85.2bn at end-March (Chart 1). At the current level,
the foreign exchange reserves are sufficient to finance 8.3 months of retained imports and cover 4.4 times the short-
term external debt of the nation, compared with a high of 10.0 months of retained imports and 4.3x of short-term
external debt cover as at end-February.

◆ In line with a decline in foreign exchange reserves, the ringgit took a turn and began to depreciate against the US
dollar. This was due to flight to safety as investors pulled out their funds from emerging markets on the back of
a deepening sovereign debt crisis in Europe and concerns over the policies tightening in Asia that could slow down
economic activities. As a result, the ringgit fell by 4.5% against the US dollar between 1 May and 7 June, after
appreciating by 6.8% in the previous three months. Similarly, S$, peso, rupiah and baht depreciated by 3.5%, 5.0%,
2.9% and 0.9% respectively against the US dollar, after a gain of +2.8%, +3.9%, +3.6% and +2.1% respectively
during the same period. The euro also weakened by a whopping 10.2% but the Japanese yen strengthened by 3.0%
against the US dollar during the same period. Meanwhile, the Chinese renminbi remained relatively stable, as it has
been pegged to the US dollar since July 2008. As a whole, we expect the ringgit to remain volatile and it will
likely fluctuate at around RM3.20-3.30/US$ for the rest of 2010 before settling at RM3.20/US$ by end-2011.

Chart 1
Foreign Holdings Of Debt Securities

RM bn

140

120

100

80

60

40

20

0
2007 J 2008 J 2009 J 2010

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

A comprehensive range of market research reports by award-winning economists and analysts are Page 1 of 2
exclusively available for download from www.rhbinvest.com
 7 June 2010

◆ Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank held relatively
stable at an estimate of RM226.3bn at end-May, compared with RM226.4bn in mid-May and RM223.3bn at end-2009
(see Chart 2). A pick-up in liquidity mopped up by the Central Bank through the issuance of BNM bills and the
repurchase agreements (repos) was offset by a decline in borrowings from the interbank market. The liquidity
mopped up by the Central Bank through the issuance of BNM bills rose to RM72.2bn at end-May, from RM63.1bn in
mid-May 2010 and RM33.4bn at end-2009. Similarly, the repos inched up to an estimate of RM13.2bn at end-May,
from RM10.9bn in mid-May 2010 and compared with RM21.6bn at end-2009. These were, however, offset partially
by a decline in liquidity mopped up by the Central Bank through interbank borrowings, which fell to RM140.9bn at
end-May, from RM152.3bn in mid-May 2010 and compared with RM168.3bn at end-2009. Excluding the repos, the
amount of excess liquidity mopped up by the Central Bank fell to an estimate of RM213.1bn at end-May, from
RM215.5bn in mid-May 2010 and compared with RM201.7bn at end-2009.

Chart 2
Excess Liquidity Mopped Up By BNM

352

302 Repos (es tim ate)

252 B N M bills

202 E x c es s funds m opped up by

B N M from interbank m ark et

152

102

52

2
00 01 02 03 04 05 06 07 08 09 10

IMPORTANT DISCLOSURES
This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of
RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution
only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are
based on generally available data believed to be reliable and are subject to change without notice, and may differ or be
contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and
criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein.
RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement
by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time
have an interest in the securities mentioned by this report.
This report does not provide individually tailored investment advice. It has been prepared without regard to the individual
financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable
for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and
encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will
depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees
or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report.
RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and
financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its
trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may
trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of
any company that may be involved in this transaction.
“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding
company and the respective directors, officers, employees and agents of each of them. Investors should assume that the
“Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities
have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.
This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been
reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,”
including investment banking personnel.
The research analysts, economists or research associates principally responsible for the preparation of this research report
have received compensation based upon various factors, including quality of research, investor client feedback, stock picking,
competitive factors and firm revenues.

A comprehensive range of market research reports by award-winning economists and analysts are Page 2 of 2
exclusively available for download from www.rhbinvest.com