Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

<ul>
<li>Although Anwar-led Pakatan Harapan (PH) won a plurality as we expected, the Islamist PAS unexpectedly emerged as the largest Malay party, winning 49 seats (vs UMNO's 26 and Bersatu's 24).</li>
<li>PH could attempt to form coalition with the Borneo Bloc (28 seats) plus a few smaller parties. A stabler alliance would involve PH joining PAS, given their leaders' ABIM pasts. </li>
<li>PN and BN could attempt to cobble an alternative alliance with the Borneo Bloc, but the latter will be wary of PAS being the largest party in it. Uncertainty ahead! </li>
</ul>


Although Anwar-led Pakatan Harapan (PH) won a plurality as we expected, the Islamist PAS unexpectedly emerged as the largest Malay party, winning 49 seats (vs UMNO's 26 and Bersatu's 24).
PH could attempt to form coalition with the Borneo Bloc (28 seats) plus a few smaller parties. A stabler alliance would involve PH joining PAS, given their leaders' ABIM pasts. 
PN and BN could attempt to cobble an alternative alliance with the Borneo Bloc, but the latter will be wary of PAS being the largest party in it. Uncertainty ahead! 


PH Wins a Narrow Plurality, but PAS Is the Single Largest Party: Uncertainty Ahead

<ul>
<li>Expansionary fiscal and monetary policy have bolstered growth at the expense of a 13%YoY depreciation of the ringgit and capital flight reflected in shrinking FX reserves amid surging trade surpluses. </li>
<li>Elevated crude-oil and palm oil prices boosted the trade surplus, but the current account surplus shrank to less than 1% of GDP in 1H2022, as foreign-worker remittances soared. </li>
<li>Despite 24 years of current account surpluses, Malaysia's reserves provide just 4.6 months' import cover. Net FPI outflows persisted even when global equities were soaring. Kleptocracy is inducing capital flight.  </li>
</ul>


Expansionary fiscal and monetary policy have bolstered growth at the expense of a 13%YoY depreciation of the ringgit and capital flight reflected in shrinking FX reserves amid surging trade surpluses. 
Elevated crude-oil and palm oil prices boosted the trade surplus, but the current account surplus shrank to less than 1% of GDP in 1H2022, as foreign-worker remittances soared. 
Despite 24 years of current account surpluses, Malaysia's reserves provide just 4.6 months' import cover. Net FPI outflows persisted even when global equities were soaring. Kleptocracy is inducing capital flight.  


Malaysia: Local and Foreign Investors Are Fleeing Despite the Commodity Boom

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Technical Analysis

<ul>
<li>USD/MYR breakout above 4.50 targets 4.66 and 4.80 and will see a correlation bleed in Asia compared to a topping DXY zone at 111.25/50.</li>
<li>This USD/MYR red flag has the potential to see accelerated USD gains in Asia as risk aversion dominates trade into late September.</li>
<li>Asian FX and particularly SE Asian FX at risk. USD/THB targets 38 and the IDR is now vulnerable.</li>
</ul>


USD/MYR breakout above 4.50 targets 4.66 and 4.80 and will see a correlation bleed in Asia compared to a topping DXY zone at 111.25/50.
This USD/MYR red flag has the potential to see accelerated USD gains in Asia as risk aversion dominates trade into late September.
Asian FX and particularly SE Asian FX at risk. USD/THB targets 38 and the IDR is now vulnerable.


Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>The Turkish lira has become the worst-performing currency this year as the central bank is holding the policy rate steady despite sharply accelerating inflation, leading to highly negative real rates.</li>
<li>The lira is effectively in a vicious cycle: weakening currency adds to inflationary pressures, which with the central bank on hold means real rates become more negative, hurting the currency.</li>
<li>High inflation is also weighing on the economic outlook, which combined with worsening current account and fiscal deficits and depleting international reserves, is adding to the depreciation pressure.</li>
</ul>


The Turkish lira has become the worst-performing currency this year as the central bank is holding the policy rate steady despite sharply accelerating inflation, leading to highly negative real rates.
The lira is effectively in a vicious cycle: weakening currency adds to inflationary pressures, which with the central bank on hold means real rates become more negative, hurting the currency.
High inflation is also weighing on the economic outlook, which combined with worsening current account and fiscal deficits and depleting international reserves, is adding to the depreciation pressure.


Turkish Lira Takes the Helm as the Worst-Performing EM Currency

<ul>
<li>The dollar has strengthened significantly since Russia's invasion of Ukraine, which has led to a broad risk-off environment. Among EM currencies, the worst performer has been the Hungarian forint. </li>
<li>Adding to the economic woes resulting from Russia's aggression, the forint has suffered as the central bank has signaled less aggressive monetary tightening even with inflation hitting a two-decade high.</li>
<li>PM Orban has worsened the situation with his pre-election spending and by going against the EU by resisting further sanctions on Russia. Relatedly, funding from the EU is at risk.</li>
</ul>


The dollar has strengthened significantly since Russia's invasion of Ukraine, which has led to a broad risk-off environment. Among EM currencies, the worst performer has been the Hungarian forint. 
Adding to the economic woes resulting from Russia's aggression, the forint has suffered as the central bank has signaled less aggressive monetary tightening even with inflation hitting a two-decade high.
PM Orban has worsened the situation with his pre-election spending and by going against the EU by resisting further sanctions on Russia. Relatedly, funding from the EU is at risk.


Which EM Currency Has Suffered the Most Since Russia’s Invasion of Ukraine?

Malaysia

The Malaysian ringgit is the official currency of the Federation of Malaysia. 

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MYR (USDMYR CURNCY)

PH Wins a Narrow Plurality, but PAS Is the Single Largest Party: Uncertainty Ahead

Islamist PAS is the largest party in the new parliament, an outcome that will worry markets. Multi-racial PH does have the plurality, but any...

Prasenjit K. Basu

Malaysia: Local and Foreign Investors Are Fleeing Despite the Commodity Boom

Expansionary fiscal & monetary policy have bolstered growth but induced capital flight. Despite 24yrs of CA surpluses, FX reserves provide just 4.6...

Prasenjit K. Basu

USD/MYR Red Flag Above 4.50

This USD/MYR red flag has the potential to see accelerated USD gains in Asia as risk aversion dominates trade into late September. The bullish flat...

Thomas Schroeder

Turkish Lira Takes the Helm as the Worst-Performing EM Currency

The Turkish lira is effectively in a vicious cycle: weakening currency adds to inflationary pressures, which with the central bank on hold means...

Gautam Jain, PhD, CFA

Which EM Currency Has Suffered the Most Since Russia’s Invasion of Ukraine?

Adding to the economic woes from Russia's aggression, the Hungarian forint has suffered as the central bank has signaled less aggressive monetary...

Gautam Jain, PhD, CFA

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