This Week’s Top Headlines

i) The ringgit reverses its upward trajectory against the US dollar. Since the start of August, the local note has declined by 2.84%, dragged lower by the weakening Chinese yuan.

ii) Malaysia’s GDP expanded by 2.9% in the second quarter of 2023, marking the third consecutive quarter of slowdown in growth. BNM warns that Malaysia may still be susceptible to risks from global uncertainties.

iii) Bitcoin slips to a 2-month low of $25,900, spurred by fears that Elon Musk’s SpaceX has sold some of its Bitcoin holdings.

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Ringgit loses steam against the US dollar

It has been a bad month for the ringgit, having declined 2.87% versus the greenback since the start of August.

On Friday’s close, the local note slipped to RM4.6424 from its 2 month high of RM4.5112 on August 1.

On a year-to-date basis, it has depreciated by 5.21%, spurred by a multitude of factors such as the US Fed’s aggressiveness and Bank Negara Malaysia’s recent decision to keep the Overnight Policy Rate (OPR) steady.

Ringgit is being pulled lower by weakening yuan

Among the main reasons for the ringgit’s recent decline is the weakening Chinese yuan, which fell to a 9-month low against the greenback on Wednesday (16 Aug).

The yuan’s slump comes as China's central bank unexpectedly slashed key policy rates for the second time in three months on Tuesday, as authorities ramp up monetary easing efforts to boost a sputtering economic recovery, spurred by the worsening property crisis.

Rates were cut by 15 basis points to 2.50% from 2.65% previously, and the central bank also injected 204 billion yuan to revive the economy.

The move widened the yield gap with other major economies such as the US, placing more pressure on the yuan and risking outflows.

Consequently, both bond yields and the yuan fell.

Since the ringgit is closely linked to the Chinese currency (refer to the chart below), the yuan's weakening led to a similar downward trend for the local note.

*The ringgit’s close relationship with yuan comes from China being the largest trading partner of Malaysia for 13 consecutive years, among other factors.

Dollar strength pushes ringgit lower

Another reason for the setback of the ringgit is the US dollar’s strength.

The dollar index, which tracks the status of the greenback versus other major currencies, has rebounded sharply after falling to a 15-month low on 18 July.

Since then, it has gained 3.83%.

Interest in the dollar spiked when the recently released minutes from the FOMC’s July 25-26 meeting show that another interest rate hike is still on the table.

Members continue to view inflation as a threat and are willing to hike rates further to address it.

The Fed in July raised rates by 25 bps to a target range of 5.25% to 5.50%. Despite the minutes showing another possible hike, investors are predicting a pause from the Fed next month.

In fact, following the previous hike, markets were pricing in no more rate increases from the Fed for the rest of the year.

Now, it’s unclear how the Fed will act.

Malaysia GDP grew by 2.9%, but…

Malaysia’s economy expanded by 2.9% in the second quarter of 2023, marking the third consecutive quarter of slowdown in growth, influenced by a challenging global situation and decreased external demand.

Economists had anticipated a higher GDP growth of 3.3% following the remarkable 14.2% expansion in Q3 of 2022.

Bank Negara attributed the current quarter's growth to reopening effects and domestic demand, which was primarily fueled by private consumption and investment.

While goods export growth faced a slowdown, the recovery in inbound tourism partially mitigated this.

For June, the headline inflation moderated to 2.4% compared to 3.4% a year ago, with similar decreases in core inflation.

Slowing price pressures and lower than expected GDP numbers will most likely encourage BNM to hold the OPR steady at 3.0%.

Looking ahead, BNM projects that Malaysia's economy will likely expand 4-5% in 2023, based on expected improvements in domestic demand from better employment and multi-year projects. The upward trend in tourist arrivals is also anticipated to continue.

Despite the positive outlook, the economy remains susceptible to risks, particularly those stemming from global growth uncertainties.

Foreign investors stretch their net buying in Bursa for the fifth consecutive week

According to MIDF’s fund flow report, foreign investors continued their net buying streak on Bursa Malaysia for the 5th consecutive week on the week ending 11 August.

They net bought everyday, with a total inflow of RM465.5 million.

The top three sectors that saw net foreign inflows were Financial Services (RM274.3m), Technology (RM66.0m) and Plantation (RM65.0m).

Local institutions on the other hand, remained net sellers of domestic equities for the fifth straight week.

However, on a year-to-date basis, local institutions have been net buyers at RM2.68 billion.

Stocks that saw notable foreign inflows from the week ending 11 August include Maybank (MAYBANK), Public Bank (PBBANK), Tenaga Nasional (TNB), and Malaysia Airports (MAHB).

Meanwhile, foreign investors were heavily selling Top Glove (TOPGLOV), Petronas Chemicals (PETCHEM), and Hartalega Holdings (HARTA).

Bitcoin slumps to 2-month low

The world’s largest cryptocurrency has fallen to a 2-month low of $25,100 on Thursday, shedding 9% of its value in 4 minutes.

Bears returned to the market when a Wall Street Journal report unveiled that SpaceX had sold all its bitcoin holdings this and last year, totaling to $373 million.

In 2021, Musk said that Tesla had added $1.5 billion in bitcoin to the firm's balance sheet. The company has since sold $936 million worth of bitcoin, according to The Block.

WSJ’s report sparked a huge initial selloff, and the rest were cascading liquidations, reaching over $1 billion in the 24 hours leading to Friday morning, Coinglass data showed.

Bulls are currently defending the crucial support of $25,000, but the question remains as to how long this support will hold, considering the array of negative factors (Fed hints at more rate hikes, China’s real estate crisis, etc.) that could pull markets lower.

Nevertheless, I believe that the last line support for Bitcoin, where the sentiment flips from bullish to bearish, is at $20,000. Breaking below this level will trigger another wave of selloff, which could bring us back to the November 2022 low of $15,550.

That’s all for this week’s newsletter!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice. The opinions of this newsletter are solely that of the publisher.

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