Malaysia’s Trade Balance Improves, Just in Time for Fed Taper

(WSJ) – Malaysia’s largest trade surplus in 20 months suggests the country can keep its current account in the black, a key advantage as the U.S. Federal Reserve begins winding down its bond-buying program.

Hints last spring that the Fed was preparing to taper its economic stimulus sparked an exodus from emerging markets as investors began to expect higher returns back home. That shined a spotlight on Asia’s economic fundamentals, with countries sporting deficits in their fiscal and current accounts bearing the brunt of the selloff.

Malaysian assets were among those punished as the country’s current account came perilously close to deficit in the middle of 2013. The ringgit tumbled 2.8% against the U.S. dollar and foreign ownership of Malaysian government bonds fell to 42.8% at end-September, from 46.8% three months earlier.

Bank Negara Malaysia largely stayed on the sidelines during the selloff, as the weaker currency made the country’s exports cheaper while dampening import demand. Meanwhile, the government enacted a serious reform program, cut subsidies to improve its fiscal outlook and took emergency measures — such as staggering capital-intensive imports — that kept the current account barely in surplus.

Several months later, Wednesday’s data showed the trade surplus widened in November to MYR9.72 billion (US$2.96 billion) from October’s MYR8.23 billion. The trade balance is a major component of the current account.

“We’re not worried about the current account slipping into deficit, as the trade account shows a strong bounceback,” said Danny Wong, the Kuala Lumpur-based chief executive of Areca Capital, which manages about 500 million ringgit in Malaysian assets.

Malaysia recently has been caught up in a renewed wave of selling of emerging assets as investors worry about slowing growth, but it hasn’t been hit as hard as its neighbors. Stocks have fallen for the past five sessions but from record highs, while the ringgit has lost 1.4% against the dollar over the past month.