MALAYSIA, INDIA
Malaysia and India elevate ties to Comprehensive Strategic Partnership
(21 August 2024) India and Malaysia have upgraded their relationship to a comprehensive strategic partnership, formalised during Prime Minister Narendra Modi’s meeting with Malaysian Prime Minister Anwar Ibrahim. The two countries signed nine Memorandums of Understanding (MoUs), including one focused on the welfare of 140,000 Indian workers in Malaysia. Discussions covered countering radicalisation, extremism, and the situation in the South China Sea, with both leaders affirming their commitment to freedom of navigation and peaceful dispute resolution. While terrorism was a key topic, Indian officials did not confirm if the extradition of Islamic preacher Zakir Naik was raised. India also announced a one-time allocation of 200,000 metric tonnes of white rice to Malaysia and highlighted defence cooperation possibilities. Additionally, Malaysia expressed support for India’s bid for permanent membership in the UN Security Council. The MoU on worker recruitment and repatriation includes simplified visa procedures, allowing Indian workers to be employed across all sectors open to foreign workers in Malaysia.

MALAYSIA
Foreign investment into Malaysia rising sharply due to improving growth and strengthening currency  
(22 August 2024) Foreign investment in Malaysia is rising sharply, driven by improving economic growth, political stability, and a strengthening currency. In July, foreign investors injected USD 1.75 billion into Malaysian debt markets, marking the highest inflow in a year. Malaysia’s stock market, represented by the KLCI index, has surged over 12% this year, outpacing the MSCI Southeast Asia index’s 6% rise. The ringgit, Asia’s best-performing currency in 2024, has gained over 5% this year, reaching an 18-month high against the dollar. Foreign ownership of Malaysian bonds has increased to 20%, supported by the currency’s appreciation and attractive bond yields as U.S. interest rates are expected to decrease. The economic momentum is further bolstered by a significant expansion in the second quarter, driven by sectors such as construction, power, and infrastructure. Analysts suggest that Malaysia’s appeal will continue to grow as the U.S. and regional economies cut rates while Malaysia maintains its current rates amid robust growth, which will keep the ringgit steady and make Malaysian bonds attractive.

MALAYSIA
Malaysian bonds exhibit highest correlation in emerging Asia to Treasury rally
(22 August 2024) Emerging Asian bonds have shown increasing sensitivity to U.S. Treasuries, with the 30-day correlation between EM Asia bonds and 10-year U.S. yields rising to around 0.29, nearing a seven-month peak. Malaysian bonds exhibit the highest correlation in the region at 0.53, positioning them as the most likely beneficiaries from anticipated Federal Reserve interest-rate cuts. This correlation surge has coincided with a weaker dollar, attracting foreign investors and boosting local currencies. Malaysian bonds have returned 8.3% to dollar-based investors this year, outperforming regional peers. Other bond markets in the region, including Thailand and South Korea, also show significant correlations with Treasuries. Despite dovish signals from central banks in the region, the growing link to U.S. yields increases the vulnerability of these bonds to potential increases in U.S. yields and a rebound in the dollar, which has recently shown signs of stabilising. 

VIET NAM, THAILAND
Vietnamese EV maker postpones launch of dealership network in Thailand   
(22 August 2024) VinFast Auto Ltd., the Vietnamese electric-vehicle manufacturer, has postponed the launch of its dealership network in Thailand due to a slowdown in passenger car sales in the country. The company stated that it will reassess the timing of its EV sales in Thailand to ensure alignment with its global standards. This decision comes amidst a broader downturn in the global EV market, with major manufacturers like Ford, General Motors, Volkswagen, and Tesla scaling back their ambitions. VinFast recently delayed the opening of its North Carolina factory by three years to 2028, reduced its 2023 sales target from 100,000 to 80,000 units, and has signed agreements with several dealers in Thailand, though no new timeline has been provided. Despite the delay, Thailand remains a key market for VinFast, and the company is continuing its expansion plans in other markets. 

VIET NAM
Tech firm FPT commences construction on USD 174 million AI project in Binh Dinh province  
(21 August 2024) Vietnam’s leading tech firm, FPT, has commenced construction on a USD 174 million artificial intelligence (AI) project in Binh Dinh province, developed in collaboration with FPT City Danang, FPT Investment, and FPT Software. The project spans 93.24 hectares and includes an AI centre focused on research, software production, digital transformation, and cybersecurity, along with an education zone and a supporting urban area. FPT, valued at USD 7.7 billion on Vietnam’s Ho Chi Minh City bourse, generated over USD 2 billion in revenue last year. In April, FPT also announced plans to build a USD 200 million AI factory utilising Nvidia’s technology.

MYANMAR
Rapid depreciation of Myanmar kyat sharply increases prices of essentials  
(21 August 2024) The rapid depreciation of Myanmar’s kyat, which recently plunged to a low of 7,500 to the dollar in the black market, has sharply increased the prices of essentials, including food and medicine, exacerbating the economic hardships faced by ordinary households. Although the kyat has since partially recovered to around 6,000 to the dollar, prices remain elevated, with grocery costs rising from 25,000 kyat to 40,000 kyat per week in some areas. Contributing factors include rising transportation costs due to fuel shortages, disruptions in border trade, and the junta’s alleged currency printing to prop up the kyat. The military’s attempts to stabilise the economy, including the arrest of 56 individuals involved in currency and gold trading, have so far failed to curb inflation. The World Bank reported that poverty is more widespread than at any time in the last six years, with economic growth expected to remain at 1% for the current fiscal year, while household incomes have declined and unemployment has risen. The National Unity Government criticises the junta for lacking a proper economic management plan, attributing the crisis to the regime’s policies. 

SINGAPORE, MALAYSIA
Malaysia and Singapore finalizing agreement to establish special economic zone in Johor state
(22 August 2024) Malaysia and Singapore are finalising an agreement to establish a special economic zone (SEZ) in Johor, Malaysia, aimed at transforming the region into a major trading and transportation hub. The SEZ, covering an area in southern Johor, is expected to attract billions in foreign investments, create 100,000 new jobs, and contribute approximately USD 26 billion annually to Malaysia’s economy by 2030. Tech companies such as Nvidia and GDS Holdings are already investing in data centres in the area, which will likely benefit from the SEZ. The agreement could also address Singapore’s land constraints and provide mutual economic benefits. However, challenges remain, including historical political tensions, differing tax rates, and potential implementation issues. The SEZ is supported by Malaysia’s King Sultan Ibrahim Iskandar, a pro-business ruler with significant investments in Johor. Both countries are expected to finalise the agreement by the end of the year, with updates anticipated during the upcoming meeting between Singapore Prime Minister Lawrence Wong and Malaysia Prime Minister Anwar Ibrahim.

RCEP Monitor

CHINA
Investors increasingly betting on continued strength of China’s bond market
(22 August 2024) Investors are increasingly betting on the continued strength of China’s bond market despite the People’s Bank of China’s (PBoC) efforts to manage long-term government bond yields, which have dropped to around 2.1% for 10-year and 2.3% for 30-year bonds due to weak domestic demand. While foreign investors have reduced their direct holdings in Chinese government bonds, they have increased investments in short-term debt issued by Chinese banks, with overseas holdings of negotiable certificates of deposit rising to over RMB 1 trillion by July, up from RMB 260 billion a year earlier. These investments are enhanced by currency trades that push yields above those of U.S. Treasuries, offering returns in the 6% range in U.S. dollar terms. The PBoC has signaled potential intervention to prevent long-term yields from falling too sharply, aiming to avoid financial instability and maintain a balanced yield curve. Despite these concerns, foreign investors remain attracted to Chinese bonds due to their uncorrelated performance with other global markets and potential for decent returns, particularly as domestic banks continue to buy government bonds in the absence of strong economic growth and consumer demand.

CHINA
China significantly reduces number of permits for new coal-fired power plants by nearly 80%  
(21 August 2024) China significantly reduced the number of permits for new coal-fired power plants by nearly 80% in the first half of 2024, according to a Greenpeace East Asia report. The report also highlighted that China’s combined wind and solar capacity, reaching 11.8 terawatts (TW), surpassed its coal capacity of 11.7 TW for the first time, with renewables accounting for 84.2% of new grid-connected capacity. Despite this, China commissioned 14 new coal plants totalling 10.3 gigawatts (GW) in the first half, marking a 79.3% decrease compared to the same period in 2023. The report suggests that improving grid connectivity is essential to maximize the output of the country’s wind and solar plants. Meanwhile, analysts from the Centre for Research on Energy and Clean Air indicated that China’s carbon emissions may have peaked in 2023, with a 1% year-on-year decline in the second quarter of 2024. China continues to justify coal plant construction for grid stability during peak demand periods, such as during extreme heat events.

AUSTRALIA, SINGAPORE
Australia aims to supply 15% of Singapore’s energy needs through solar energy exports
(21 August 2024) Australia has granted environmental approval for the USD 19 billion Australia-Asia Power Link project, which will involve a 12,000-hectare solar farm in the Northern Territory. The project aims to generate 6GW of renewable energy, with one-third of it transmitted to Singapore via an undersea cable. Once operational in the early 2030s, it is expected to supply up to 15% of Singapore’s energy needs and create 14,300 jobs. The approval includes conditions to protect the greater bilby habitat. SunCable, owned by billionaire Mike Cannon-Brookes, will now proceed to the planning stage with a target Final Investment Decision by 2027. The project still faces regulatory reviews in Singapore and Indonesia. The approval follows a period of uncertainty after SunCable entered voluntary administration in January last year due to a dispute between Cannon-Brookes and Andrew Forrest, but has since been revived. The project highlights Australia’s commitment to renewable energy amidst ongoing political debate over energy sources.