China Boost for Ringgit and Malaysia Capital Market

Prime Minister Najib Razak attends the official welcoming ceremony to honour the visit of China's Premier Li KeQiang in Putrajaya.

China has given an undertaking to buy Malaysian government bonds and will also be providing a 50 billion Yuan (RM33bil) quota for local institutional funds to purchase equities and bonds directly in the world’s second largest economy.

In what are seen as measures that could boost Malaysia’s capital market and the Ringgit in the longer term, the Asian powerhouse said that it would buy more Malaysian bonds, an action that will lend support to the Ringgit should foreigners sell down as they brace for an upcoming rise in US interest rates.

“We want to assume a market role by purchasing your treasury bonds,” Chinese premier Li KeQiang said at the Malaysia-China High Level economic forum here.

China Premier Li KeQiang (left) and Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi at the Malaysia-China High Level Economic Forum.

The Ringgit is one of the worst-performing currencies in the region year to date, shedding almost 20% against the US dollar over the period amid political uncertainties and external weaknesses.

The stock market is down 5% since January while Malaysian bond market investors have also suffered a negative impact since the beginning of this year.

On the 50 billion Yuan new quota, Li said this would be given to Malaysian investors under the Renminbi Qualified Foreign Institutional Investor (RQFII) programme.

The RQFII essentially allows foreign investors to invest in China using offshore Renminbi accounts. Without access to RQFII, foreign investment in China is largely curtailed.

The meeting of Li KeQiang with 10 Malaysian entrepreneurs.

In its response, Bank Negara said in a statement that China’s decision to extend the RQFII programme to Malaysia would complement the Renminbi clearing bank arrangement in Malaysia and collectively, the initiatives will support the growing trade, investment and financial flows between China and Malaysia as well as position Malaysia as another offshore Renminbi centre in the region.

It said with this framework, Malaysian qualified institutions would be able to mobilise offshore Renminbi funds to gain direct exposure to the Chinese financial markets and contribute to the development of the Renminbi market in Malaysia.

Notably, Malaysia’s closest neighbour Singapore said recently that China had doubled its investment quota to 100 billion Yuan.

Li said the measures announced were part of China’s plan to help boost Malaysia’s economy while strengthening ties between the two countries which have long enjoyed a good working relationship.

China Premier Li visits historic Malacca.

Li also said that China was keen to work with Malaysia to help it achieve its goal of becoming a high-income nation by 2020.

Among Asean countries, Malaysia has been doing the most trade with China since 2008, Prime Minister Datuk Seri NajibTun Razak said earlier this year.

Trade between both countries had reached a historic high last year totaling more than US$100bil (RM430bil).

China, the world’s second largest economy after the United States, is also Malaysia’s top trading partner.

In terms of Chinese manufacturing project simplemented in Malaysia as of Dec 31, 2014, these totalled 182 worth US$2.83bil.

More recently, Malaysia has seen the setting up oft he Xiamen University Malaysia Campus in Salak Tinggi, Sepang which will take in its first batch of students in February 2016.

The collaboration between Malaysia and China in setting up this overseas campus is expected to contribute to the creation of skilled manpower in both countries.

Xiamen University Malaysia Campus in Salak Tinggi, Sepang.

Li said that in the next five years, China was expected to import foreign goods worth US$10 trillion.

Meanwhile, Bank Negara said in its statement that the Securities Commission would further collaborate with the China Securities Regulatory Commission to implement the newly-announced RQFII programme.

(News Source: The Star Online)

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