- During 1H of June, total FOREX reserves at of Bank Negara Malaysia (BNM) have declined since peaking in the middle of May. Despite the resilience in terms of domestic fundamentals, Malaysia remains susceptible to threats of the unwinding of the QE in the US. According to the statistical release on Friday, the international reserves of BNM in USD terms had declined by 0.4% (or –USD0.6bil) since May 31, thus amounting to USD140.8bil (or RM435.0bil) as of June 14.

-  Regional markets have undergone a correction last week and may stay lacklustre until the QE unwinds completely. Back in 2011 when the QE2 ended, FBM KLCI corrected close to 263 points (or -20%) from July 7 to September 26. As a recap, QE2 had amounted to USD600bil as compared to the latest QE that will amount to approximately USD970bil by the end of September.

-  The dates of the forthcoming FOMC meetings for 2013 that investors should look out for are:- (1) July 30-31; (2) September 17-18; (3) October 29-30; and (4) December 17-18. During these meetings, the Fed will likely communicate its policy decision going forward.

-  Elsewhere, the Ringgit had fallen by 4.9% as at YTD June 21. However, from the recent high on May 8 to the close at 3.20 on last Friday, Ringgit had already depreciated by 8.0%. When QE2 ended in 2011, the Ringgit fell by approximately 8.3% from the high of 2.939 on July 27, 2011. Further downside risk for the Ringgit is likely considering the size of the recent QE and thus the retraction of the QE could result to substantially huge outflows of funds from Malaysia as well. We anticipate continued weaknesses for the Ringgit until the QE unwinds completely in mid-2014.

-  With that in mind, we are taking this opportunity to review our year-end 2013 projection for the Ringgit vs. USD to 3.12-3.15 instead of our initial forecast of 3.05. However, we foresee the Ringgit to depreciate by approximately 13.4% from the recent high of 2.96 before a rebound by the end of the year.

Source: AmeSecurities