Ringgit remains top performer in Asia

“In a nutshell, it’s good progress for the ringgit as it continues to reflect better confidence in the Malaysian economy, especially among foreign investors,” he explained.

CIMB Bank Research’s fair value of the ringgit is at RM4.3 against the US dollar, buoyed by Malaysia’s export and foreign direct investment (FDI) recovery, diminishing foreign currency preference, unwinding of US dollar long positions and normalising non-resident bond and equity portfolio flows.“We turned constructive on the ringgit in March and believe gains could persist in the near term, as net foreign inflows rise.

Firstly, the recovery in electrical and electronics exports and trade surplus may add up to US$2bil per month in net foreign currency proceeds through end-2024,” the brokerage wrote in its report yesterday.

“Secondly, helping translate this into ringgit gains are moderating US dollar preferences due to shrinking US-Malaysia (bond) yield differentials and coordinated encouragement of flexible two-way flows for exporters and resident investors,” it added.Kenanga Research in its report yesterday noted that the ringgit was poised for strong recovery amid imminent US Fed rate cuts and robust domestic growth outlook, which have boosted demand for Malaysian assets.

“The ringgit, after a prolonged period of weakness, is expected to strengthen further as the US dollar index (DXY) is expected to decline in the fourth quarter of 2024 (4Q24), driven by a highly expected Fed rate cut in September,” the brokerage said.

“A lower DXY, expected to trend around the 101.0 to 102.0 level in 4Q24, could further strengthen the ringgit, based on anticipated 25 basis points (bps) Fed rate cuts in September and December amid a cooling job market and slowing inflation, along with rising credit card and auto loan delinquencies,” it explained.

For now, Kenanga Research maintained its projection of ringgit-to-US-dollar exchange rate at RM4.42 by end-2024.

It noted that Malaysia’s domestic fundamentals were also supportive of the ringgit’s value, pointing out that the government’s ongoing debt reduction through fiscal consolidation might boost investor confidence and lead to a potential credit rating upgrade, as the fiscal deficit was expected to narrow.

“With most global central banks expected to cut their policy rates in the second half of 2024, our expectation that Bank Negara would maintain the overnight policy rate (OPR) at 3% for the next 12 to 18 months should attract capital inflows,” Kenanga Research said.

“Combined with solid gross domestic product growth prospects of 4.5% to 5% in 2024 (2023: 3.6%) and 4.9% in 2025, this supports a bullish ringgit outlook,” it added.

Kenanga Research said demand for domestic bonds is expected to remain strong throughout 2024, bolstered by anticipated Fed rate cuts, a strengthening ringgit and a stable OPR. Futher, the reaffirmation of Malaysia’s sovereign credit ratings with a “stable” outlook from both S&P and Fitch would likely to boost the appeal of local bonds to foreign investors.

“Potential rating upgrade could be on the horizon, driven by improvements in public finances, including a declining federal debt-to-GDP ratio, enhancing the appeal of local bonds,” Kenanga Research said.

“We foresee possible revisions to Fitch’s outlook to positive BBB+ and S&P’s to positive A- in 2025, with the potential for Malaysia to achieve A- from Fitch and A from S&P, supported by prospects of improved fiscal consolidation, better governance and economic fundamentals,” it added.

Meanwhile, Maybank Investment Bank Research highlighted that inflows to Malaysian bond and equity markets have been sizeable, probably totalling close to RM10bil since July.

In its report, the brokerage noted total portfolio flow (bond and equities) turned marginally negative in June at –RM640mil, as compared to plus RM6.98bil in May, as foreign buying of ringgit bonds moderated from May.