• This will be a boon for Bursa Malaysia amid the sustainable return of foreign investors.

• Ringgit will be powered as well by a flurry of solid catalysts

Ringgit has borne the brunt of rapid and sustained selling pressure since the US started to embark on interest rate upcycle. The selling pressure has been persistent amid the wide interest gap between Malaysia’s OPR and US’s FFR. Though many expect BNM will intervene to stem the slide of Ringgit but this ‘myth holds no water’ amid the central bank dual mandates that does not include defending the Ringgit. At best, BNM will intervene to keep the volatility of Ringgit at a minimum to assist exporters and investors. In our view, the drop in Ringgit is more of a strength in USD, to a smaller extent of weakness in Ringgit, no thanks to the sharp interest rate increases in US which has been mind boggling (+525 basis points since January 2022. This is against a 125 bps increase in OPR which pushed investors to be ‘long’ on USD and ‘short’ on Ringgit. USD steam rolled not only Ringgit but most of major currencies as can be observed in the steady rise in Dollar Index (Chart 2). Yen was at the mercy of the USD, which emerged as the worst hit amid the currency that has dropped by double digits YTD (-14.11% YTD). For comparison, Ringgit declined by 6.2% YTD against USD versus Singapore’s Dollar (-0.3%) and Thailand’s Baht (-1.4%). Indonesia’s Rupiah and Philippines’s PESO bucked the regional trend amid the currencies that jumped by 0.5% and 0.12% YTD against USD.

Then what in store for Ringgit? To begin with, demand for the currency is expected to jump amid foreign investors that are expected to rebalance their portfolio to include emerging economies (EMEs) following the imminent interest rate cut in US (note: projected to be in 3Q24). US’s October CPI numbers which moderated sharply to 3.2% YoY is a cause for celebration thanks to US FOMC which could have reached the peak of its interest rate upcycle. We reiterate our view that the current FFR will be kept steady until 3Q24 amid US FFR that is poised for a cut to the tune of 100 bps in 2024. The return of foreign investors has been very encouraging amid the inflow into equity market that reached a month-to-date November of RM1.033bn. This is a sharp rebound against the month of October where foreign outflow reached a whopping -RM2.183bn. The return of foreign investors is expected to be steady and sustainable to be pushed as well by Malaysia’s solid growth prospects (2024F GDP: 5.0%; 2023E: 3.7%), rapid investment inflows following PMX that secured over RM60bn in proposed investment in US. A much-improved political risk premium will also endear to investors amid the current government that is expected to remain in power until early 2028. Having said that, fundamental-wise, we project Ringgit to end the year at RM4.55 per Dollar (17th November closing: RM4.6805 per Dollar). Technical-wise, the next resistance level is RM4.65 per Dollar before heading further north to RM4.62 per Dollar. The attractive level of Ringgit will be a pulling factor for foreign investors who have long shunned Bursa Malaysia and hence, our FBMKLCI year-end target of 1,550-points.

Source: BIMB Securities Research - 20 Nov 2023