U.S. and other foreign fund managers have emerged as key participants in the market for ringgit, Malaysia's currency, as they pour money into Kuala Lumpur's booming stock market.
Smaller players, including palm oil refiners and Japanese firms with plants in Malaysia, also have stepped up trading with the result that the dominant role of customary participants such as the oil companies has been eroded.The foreign funds have been behind many of the ringgit's sharp intra-day moves vs. the U.S. dollar this year because of the sheer size of their ringgit-denominated purchases on the Kuala Lumpur Stock Exchange.
The foreign funds routinely have been buying up to $100 million in ringgit at any one time to fund their Malaysian stock investments.
When the funds repatriate their equity profits, their ringgit sell orders can be just as big.
Orders of such a magnitude can move the ringgit sharply as the market is relatively thin compared with that in major currencies such as the yen and deutsche mark.
Dealers here could not detail the size of dollar-ringgit trading because of the lack of official statistics, but the foreign funds along with established players such as local companies and oil firms are driving volumes sharply higher.
At the same time, the Malaysian stock market has skyrocketed on heavy volumes this year, and a corporate dealer at a Malaysian bank noted: "Every time the stock market makes a big move on heavy volume, the spot ringgit moves, too."
Demand for ringgit also has been spurred by firm Malaysian interest rates, and for many overseas investors, for example those in Singapore, the Malaysian currency is seen as a high-yielding unit.
The three-month interbank offer rate for the ringgit was quoted last week at about 6.75 percent, while those for the U.S. dollar and Singapore dollar were at about 3.44 percent and 1.36 percent, respectively.
The emergence of the foreign funds also has eroded the dominant role played by Malaysian-based oil companies in the foreign exchange market.
The oil companies' orders may still move the ringgit, but the market is too big for any one player to dominate, said the chief dealer at one bank.
Oil companies active in Malaysia include giants such as Shell, Exxon and Mobil and the state-owned Petronas, and most are involved in offshore oil or gas projects.
Since their export orders are priced in dollars, the companies must buy ringgit to pay royalties, or tax, to Malaysia's government.
Oil companies trade about 100 million ringgit ($40 million) daily on the local foreign exchange market, spreading their orders through various banks.
"We mainly go through local banks for our exchange purposes, so our presence in the market is not strongly felt," said a trader at one big oil company.
But some of the oil companies, for example Petronas, also sell many of their dollars directly to Bank Negara, the central bank.
"This is good for the market, as we can't absorb huge amounts," one corporate dealer said.
Refiners in palm oil - another key Malaysian export - also are emerging as active participants in the dollar/ringgit market in what appears to be for both trade and speculative purposes.