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US Credit Rating Downgrade To Have Limited Impact On Malaysia, Says Amresearch
KUALA LUMPUR, Aug 8 (Bernama) -- The US credit rating downgrade by one notch by Standard & Poor's (S&P) has limited impact on Malaysia, says AmResearch Sdn Bhd, a member of the Aminvestment Bank Group."We reckon the impact on Malaysia will be minimal as the economy is more domestic-oriented," said its director of economic research, Manokaran Mottain, in the research house's Economic Update today.
Manokaran said the government has trimmed its exposure to "G3", including the US and at the same time was planning to boost domestic demand via the Economic Transformation Plan programmes.
"We are maintaining our Gross Domestic Product (GDP) forecast at five per cent this year," he added.
The S&P has downgraded the US' credit rating from "AAA" to "AA+" on doubts that the US' fiscal deficit reduction plan would be appropriate towards putting the US finances on a sustainable footing.
This is the first time the US' rating is cut below the highest level since 1941 when the S&P started assigning the US credit rating.
News reports on a possible new global financial crisis and its impact on Asia have triggered panic selling on the equities markets across the globe, including Malaysia.
Manokaran, however, said it was merely a knee-jerk reaction.
"In the near term, the turbulence and volatility in the global financial market would likely be shortlived," he said.
The benchmark FBM KLCI ended the day at 1,496.99, down less than two per cent.
Manokaran said the US debt ratio was still low versus Japan.
"In the worst case scenario, the US net debt ratio could rise to 101 per cent of the GDP by 2021, but still lower than Japan's expected level of 229 per cent this year.
"Also, there is a low possibility of the US losing its "AA+" rating over the next 10 years as Japan is keeping its "AA" rating despite its high ratio of net government debt," he said.
Manokaran also said there was no real alternative to the US government bonds as safe assets as the dollar would maintain its position as the reserve currency for now.
"So, the impact of the downgrade would not be as disastrous as one may think," he said.
He said countries more exposed to the US treasuries were Japan and China.
"Export-reliant economies like China would face the brunt in the near term as it would be pressured to ease the grip on a weaker yuan policy," he said.
Manokaran however said the biggest impact for Malaysia would be in the currency market, with the ringgit rallying again towards RM2.93 per US dollar.
"In the medium term, a possible another quantitative easing in the US would lead to the appreciation of the regional currencies, including the ringgit which is expected to rally towards 2.90 per dollar before settling between the 2.80-2.90 range for this year," he said.
Besides the ringgit, "precious metals" are the obvious beneficiary of this rating downgrade, said Manokaran.
"Gold and silver reserves are by nature limited and as the demand for them takes off, there is considerable scope for above-inflation price increases.
"Indeed, a breakdown in the world's bond market is the best possible scenario for precious metals," he added.
Gold prices rose to a near record high of US$1,692 per ounce this morning. (US$1=RM2.99).
Source: Bernama
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