PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

22 July 2010

Foreign Exchange Reserves Remained Relatively

Unchanged At US$94.8bn As At 15 July

◆ The foreign exchange reserves remained relatively stable, inched up marginally by US$0.04bn or
RM0.1bn in 1H July to US$94.8bn or RM309.9bn as at 15 July, after a decline of US$1.34bn or -RM4.6bn in 2H
June. This suggests that the repatriation of export proceeds was offset by some outflow of foreign portfolio funds
and payment of import bills. As it stands, the inflow of foreign portfolio investment in fixed income papers slowed
down sharply to RM0.1bn in May, from +RM8.5bn in April and a high of RM12.9bn in March. As a result, total holdings
in fixed income instruments by foreign portfolio investors remained relatively stable at RM93.8bn at end-May,
compared with RM93.7bn at end-April and RM85.2bn at end-March (Chart 1). At the current level, the foreign
exchange reserves are sufficient to finance 8.0 months of retained imports and cover 4.4 times the short-term
external debt of the nation, compared with a high of 10.0 months of retained imports and 4.3x of short-term external
debt cover as at end-February.

◆ Whilst the foreign exchange reserves remained relatively stable, the ringgit has turned around and strengthened
against the US dollar, in line with China’s move to allow its currency to appreciate. As a result, the ringgit appreciated
by 1.0% against the US dollar between 18 June and 22 July, after falling by 2.0% between 1 May and 18 June.
Similarly, the renminbi strengthened by 0.7% against the US dollar since China adopted a more flexible exchange
rate on 18 June. In the same vein, S$, baht and rupiah appreciated by 0.9%, 0.3% and 0.4% respectively against
the US dollar during the same period. The yen and euro also strengthened by 4.7% and 3.4% respectively during
the period. In contrast, peso and won fell by 0.7% and 0.5% respectively against the US dollar between 18 June
and 22 July. Despite the appreciation of the ringgit, we expect the ringgit to remain volatile and will likely
fluctuate at around RM3.20-3.30/US$ for the rest of 2010 before settling at RM3.20/US$ by end-2011.

Chart 1
Foreign Holdings Of Debt Securities

R M bn

140

120

100

80

60

40

20

0
2007 J 2008 J 2009 J 2010

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

A comprehensive range of market research reports by award-winning economists and analysts are Page 1 of 2
exclusively available for download from www.rhbinvest.com
 22 July 2010

◆ Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank fell to an estimate
of RM221.5bn in mid-July, from RM223.7bn at-end June 2010 and compared with RM223.3bn at end-2009 (see Chart
2). This was reflected in a decline in liquidity mopped up by the Central Bank through the issuance of BNM bills,
which eased to RM68.7bn in mid-July, from RM72.1bn at end-June 2010 and compared with RM33.4bn at end-2009.
Similarly, the repurchase agreements (repos) repos fell to an estimate of RM14.6bn in mid-July, from RM18.5bn at
end-June 2010 and compared with RM21.6bn at end-2009. These were, however, mitigated by a pick-up in liquidity
mopped up by the Central Bank through interbank borrowings, which rose to RM138.1bn in mid-July, from RM133.1bn
at end-June 2010 and compared with RM168.3bn at end-2009. Excluding the repos, the amount of excess liquidity
mopped up by the Central Bank inched up to an estimate of RM206.9bn in mid-July, from RM205.2bn at end-June
2010 and RM201.7bn at end-2009.

Chart 2
Excess Liquidity Mopped Up By BNM

RM bn
352

302

252

202

152

102

52

2
00 01 02 03 04 05 06 07 08 09 10

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of
RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution
only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are
based on generally available data believed to be reliable and are subject to change without notice, and may differ or be
contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and
criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein.
RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement
by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time
have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual
financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable
for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and
encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will
depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees
or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and
financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its
trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may
trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of
any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding
company and the respective directors, officers, employees and agents of each of them. Investors should assume that the
“Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities
have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been
reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,”
including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report
have received compensation based upon various factors, including quality of research, investor client feedback, stock picking,
competitive factors and firm revenues.

A comprehensive range of market research reports by award-winning economists and analysts are Page 2 of 2
exclusively available for download from www.rhbinvest.com