In Malaysia, the ringgit is currently trading at 4.45 to the US dollar, sharply down from the 3.20 level just a year ago, triggered largely by the global oil price crash and — according to some observers — a local political crisis. — AFP pic

KUALA LUMPUR, Sept 30 — Turmoil in the global bonds market that is pummelling the ringgit and other emerging market currencies could leave Malaysian firms among those at increased risk of failure, the International Monetary Fund (IMF) warned in a recent report.

Slowing growth and a commodities crash have badly hurt sentiment in Malaysia and other emerging markets (EM), which have lost an estimated US$40 billion (RM 177.2 billion) in foreign capital as investors flee for safer havens.

The IMF yesterday cautioned that the bonds exodus and currency depreciation will add pressure to corporations in emerging markets to meet their loan and bonds obligations, which have been exacerbated by heavily increased borrowing in recent years.

The global bank noted that EM firms have tripled their debt burden since 2004, amassing US$18 trillion in liabilities last year versus just US$4 trillion a decade ago.

“Emerging markets are going to be a very difficult place to invest in for the next 12 to 24 months,” David Spika, global investment strategist at GuideStone Capital, was quoted as saying by the WSJ.

In Malaysia, the ringgit is currently trading at 4.45 to the US dollar, sharply down from the 3.20 level just a year ago, triggered largely by the global oil price crash and — according to some observers — a local political crisis.

The depreciating ringgit has also not improved the country’s trade balance or boost exports, according to regional analysts.

The country’s central bank is rapidly depleting its foreign reserves in a bid to prop up the falling ringgit, and is under pressure to prevent a further exodus of foreign capital with around RM11 billion in government bonds due to expire today.

Putrajaya was also forced to revive the defunct ValueCap equity fund and infuse it with RM20 billion to sustain the local stock market, despite unresolved controversy from its operations during the Mahathir administration.

Foreign investors’ confidence in Malaysia is also on the wane, with a Moody’s poll of credit-default swap (CDS) traders finding that most believe the Southeast Asian country’s bonds should be placed in the “Junk” category, far below where they are currently rated.

Bank Negara Malaysia Governor Tan Sri Zeti Akhtar Aziz today said, however, that the foreign capital flight was not the worst the country has experienced and expressed confidence that they can be mitigated based on previous countermeasures.

“When there was a global financial crisis in 2008 and 2009, we had huge outflows — much more significant than what we are seeing now — and we were able to intermediate those flows,” Zeti said at the Malaysia-OECD High-level Global Symposium on Financial Well-being at Bank Negara here.

“We have no disruption in credit flows, we have an efficient and functioning financial system and these demonstrate that we have reached a degree of maturity (to withstand some sell-off of Malaysian bonds).”

Worryingly for Malaysia, however, is that the foreign capital flight is under way even before an expected rates revision by the US Federal Reserve.

Although the US central bank kept interest rates unchanged this week, the anticipation of the move has and will continue to prompt investors to withdraw their funds from emerging markets.

Malaysia’s case is exacerbated by the months-long controversy surrounding Prime Minister Datuk Seri Najib Razak and his brainchild, state-owned investor 1 Malaysia Development Bhd, over various allegations.

Investigations linked to one or both are currently underway in the US, UK, Switzerland, the SAR of Hong Kong, and Singapore, and are being covered by various international media outlets.