The ringgit’s plunge to its weakest level since 1998 is reverberating through the Malaysian stock market, putting the world’s longest equity rally at risk while turning the nation’s rubber industry into a refuge for investors.
The Malaysian currency has dropped 6.6% versus the dollar this month, battered by a political scandal, slumping oil prices and China’s devaluation of the yuan. Local shares have followed the ringgit lower, leaving the FTSE Bursa Malaysia KLCI Index on the cusp of bear market for the first time in more than seven years.
While the ringgit’s slump has increased debt costs for the nation’s foreign-currency borrowers and boosted import expenses, it’s not all bad news for Malaysia Inc.
Rubber-product exporters and semiconductor makers stand to benefit as their products become cheaper for overseas buyers. Here’s how the ringgit’s slump impacts some of the nation’s most important companies.
Tenaga Nasional Bhd, a Kuala Lumpur-based power utility that dropped 15% in local trading this month, has US$1.1 billion of debt denominated in dollars and yen.
Axiata Group Bhd, Malaysia’s biggest mobile-phone carrier by market value, has US$1.4 billion of US currency debt. Other stocks vulnerable to overseas borrowing include Astro Malaysia Holdings Bhd, Sunway Bhd. and IJM Corp, according to Terence Wong, an analyst at CIMB Group Holdings Bhd.
Companies with dollar-based costs:
AirAsia Bhd, Southeast Asia’s largest budget carrier, and its long-haul affiliate AirAsia X Bhd, both incur about 70% of their operating costs in dollars, while the ratio is more than 50% for carbonated drinks maker Fraser & Neave Holdings Bhd, according to CIMB.
Companies including British American Tobacco (Malaysia) Bhd, Guinness Anchor Bhd and Nestle (Malaysia) Bhd. also purchase raw materials in dollars and get revenue in ringgit, squeezing their profits when the Malaysian currency weakens.
UMW Holdings Bhd, which distributes Toyota Motor Corp vehicles, imports dollar-denominated parts and components, according to Hong Leong Investment Bank Bhd.
UMW and DRB-Hicom Bhd, which sells vehicles for Audi AG and Honda Motor Co, have both declined at least 18% in Kuala Lumpur trading this year.
The rubber industry:
Karex Bhd, the world’s largest maker of condoms, and Top Glove Corp, the biggest rubber-glove maker, are among Malaysian exporters that stand to gain from a weak ringgit, Anand Pathmakanthan, the head of Malaysia research at CLSA Ltd, wrote in an August 11 report. At least 90% of the companies’ sales are denominated in dollars, according to CIMB.
Malaysian chipmakers get almost all of their revenue in US currency, according to Hong Leong Investment Bank. Local producers include Uchi Technologies Bhd, Malaysian Pacific Industries Bhd and Inari Amertron Bhd, a maker of radio frequency chips used in Apple Inc devices. – Bloomberg, August 18, 2015.
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