Surges in oil prices, the dollar, and long-term US Treasury yields add to current-account deficit concerns.
According to economists, Malaysia stands among Asia’s emerging markets that will benefit economically and fiscally from rising oil prices.
Brent crude prices have jumped almost 20% in the past three months and Bloomberg Economics estimates they could soar to US$150 a barrel, from about US$90 now, if the Middle East conflict widens to include Iran. “If higher oil prices persist for a prolonged period, we see India, Thailand, the Philippines, Indonesia more vulnerable to terms of trade deterioration,” said Lavanya Venkateswaran, a senior economist at Oversea-Chinese Banking Corp Ltd. “Moreover, as ‘twin deficit’ economies — current account and fiscal deficits — they may be more vulnerable to capital outflows.”
The chart above shows emerging Asian bonds have become less attractive for investors — the premiums a borrower pays to own Indian or Indonesian bonds against US debt, for example, have hit the lowest level since at least the 2008-09 global financial crisis. “Among higher-yielding currencies, we have a slight preference for the Philippine peso and the Indian rupee over the Indonesia rupiah,” they said.
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