Published September 24, 2008

M'sia current account surplus up 56% in Q2

But portfolio investments swing to a net outflow of RM24b from Q1

By PAULINE NG
IN KUALA LUMPUR
Email this article
Print article
Feedback

MALAYSIA'S current account surplus continued to expand strongly in the second quarter of this year, growing almost 56 per cent to RM37 billion (S$15.31 billion) on higher commodity prices. But a blip in the rosy picture was a strong reversal of portfolio investments - a net outflow of RM24 billion in Q2 versus a net inflow of just over RM21 billion in Q1.

Economists say that the current account surplus is likely to narrow in the coming months, due to falling commodity prices. They also foresee a larger outflow from the financial account as more portfolio funds are withdrawn from Malaysia on concern that the ringgit would continue to depreciate, and a possible slowdown in foreign direct investment given the softer economy and political intrigue. Local investors are also expected to increasingly transfer money abroad.

An economist, who did not want to be named, said that there is no cause for concern yet despite the drop in the financial account - it registered a net outflow of RM12.3 billion in Q2 versus an inflow of almost RM26 billion Q1 - unless there is a huge fall in the Q3.

'The current account surplus is still strong despite the outflow of capital,' he said, noting the current account trend is 'a reflection of investors' mood and commodity prices'.

The surplus is sufficiently large to provide support to the economy. But falling commodity prices - crude oil and crude palm oil are down from their peaks - are anticipated to result in a narrower current account surplus in Q3.



Even so, Malaysia's international reserves were a comfortable RM388 billion at mid-September - enough to finance nine months of retained imports.

But in the two-and-a-half-month period from June to mid-September, more than RM20 billion was erased from the reserves, partly because of the weaker ringgit, but also due to portfolio fund outflows.

Economists expect Q3 data to reflect continued portfolio outflows, a trend that can be seen in stockmarket activity. There are also signs that foreign firms are accelerating the repatriation of profits. Multinationals either plan to reinvest less because of economic and political uncertainty or want to transfer funds out in anticipation that the ringgit would not gain in value.