How fragile is Malaysia?

Given that Malaysia is Emerging Asia’s largest net energy exporter it is no surprise that the ringgit has been the region’s worst performing currency over the last nine months. Now that oil prices have stabilised it is tempting to conclude that the worst is over. But a large stock of short-term external debt makes Malaysia heavily reliant on foreign funding, despite the country running a current account surplus. As a result, we see the ringgit as one of the region’s most vulnerable currencies in the event that markets react badly to rate hikes by the US Fed later this year.