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Economy

The ringgit's slump has Malaysian manufacturing on a record losing streak

Domestic upheavals also hit PMIs of India, South Korea

A construction site in the southern state of Johor

HONG KONG Malaysia's factory activity took a beating in November from feeble demand and the country's slumping currency, while domestic upheaval took a toll on activity in India and South Korea.

The headline reading for the Nikkei Malaysia Manufacturing Purchasing Managers' Index came in at 47.1, falling 0.1 point from October for the 20th straight month of decline.

A measure above 50 indicates expansion, while anything below signals contraction.

Of all metrics, new orders deteriorated the most, logging a historical low of 43.9. As a result, goods producers further reduced their production -- a trend that has been intensifying since April 2015 -- and cut back on buying activity at the fastest clip in seven months.

"For now, the current slowdown in Malaysia's manufacturing sector is largely due to soft global demand for commodities and consumer durables as the emerging markets and advanced economies, with the exception of U.S., are experiencing a slower growth trend," Wan Suhaimie, economist at Kenanga Investment Bank, told the Nikkei Asian Review.

Aggravating the plight of Malaysian producers was the weakening ringgit, which fell 6.5% against the dollar in November to a level rarely seen since the 1997 Asian financial crisis. "Manufacturers' profit margins were hit harder," said Amy Brownbill, economist at IHS Markit, which compiles the PMI survey. "Firms linked this to greater raw material costs stemming from the weakness of the Malaysian ringgit." Including fuel prices, input costs for Malaysian manufacturers in November jumped the most since the survey started in July 2012.

Due to the high level of foreign investment in Malaysian bonds, the recent surge in U.S. Treasury yields pummeled the ringgit hardest of all among ASEAN currencies. This surge in yields was fueled by prevailing expectation for a U.S. rate hike, as well as for President-elect Donald Trump's fiscal spending and protectionist policies. Mitsubishi UFJ Securities Holdings forecast the greenback to fetch as much as 4.65 ringgit in the second quarter of 2017.

SHOCK MOVE Industrial activity in India, meanwhile, took a hit from Prime Minister Narendra Modi's shock demonetization of 500- and 1,000-rupee notes on Nov. 8. The country's manufacturing PMI slowed to 52.3 in November, reversing the momentum gained the previous month. Output and new orders were down 3.4 and 4.4 points, respectively, from the previous month as cash shortages hampered producers' ability to cope with higher demand at home and abroad.

"The November PMI data may understate the near-term disruption in activity. Sales have been hit hard, which will result in higher inventory ... and result in sharper production cuts in the months ahead," Sonal Varma, chief India economist at Nomura, wrote in a note. She expected negative impacts from the demonetization to last until January, dragging India's economic growth to 6.5% year-on-year in the final quarter of 2016 and 7% the following quarter.

South Korea's manufacturing gauge came in at 48 in November, below the boom-bust line for the fourth consecutive month. The reading reflects the country's sagging industrial output, especially in mobile devices and cars, which dropped 1.7% on the year in October. Worker strikes, Samsung Electronics' discontinuation of its Galaxy Note 7 smartphone and South Korean President Park Geun-hye's offer to resign are expected to weigh on the industrial sector for the near future.

Taiwan, Vietnam and the Philippines were the few outliers delivering steady growth through November. But in addition to rising input costs, which were seen across the board, the depreciation of the Chinese yuan is boding ill for small, open manufacturing economies in Asia. "[South] Korea, Taiwan and Thailand are possibly the most vulnerable to competition from China, given their export structures -- in terms of industry distribution and country destinations -- are relatively similar to China's," said Goldman Sachs in a report on Nov. 21.

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