KUALA LUMPUR: Foreign funds will likely return when the ringgit starts to strengthen in the second half of this year, according to MIDF Research. 

The firm expects a stronger ringgit in the period fuelled by the expectations of the US rate cuts, as well as Malaysia's sound fundamentals and rosy corporate earnings outlook. 

"We expect that this will be a key driver for Malaysia's equities market performance in the latter part of 2024, which we remain cautiously bullish on," it said.

MIDF Research said foreign fund flows into Malaysian equities had of late moved in tandem with the ringgit's performance.

From the start of the year through March 14, MIDF Research said foreign funds did not take into account the US dollar against the ringgit movements as reflected by a net inflow of RM24.5 million (driven by net inflows in January and February) despite the local currency depreciation. 

"This could be due to other factors such as expectations of US rate cuts in the early part of the year," it added. 

However, MIDF Research said foreign fund flows started to mirror the movement of the US dollar against the ringgit after that period. 

"Analysing the correlation between foreign funds flows and US dollar against ringgit movements after March 14, 2024 and until June 24, 2024, we saw a correlation of -0.91, indicating that there were foreign funds inflows during the ringgit appreciation and vice versa," it said.

The firm maintained its projection for the ringgit to close 2024 higher at RM4.43 compared to RM4.59 at the end of last year. 

However, it revised the average 2024 ringgit exchange rate to RM4.64 given the persistent strength in the US dollar on the back of delayed rate cuts by the US Federal Reserve.

MIDF Research also maintained Bursa Malaysia's benchmark FBM KLCI baseline target for 2024 at 1,750 points or price-to-earnings ratio 2024 of 15.6 times.

https://www.nst.com.my/business/corporate/2024/06/1070409/foreign-funds-return-ringgit-gets-stronger-second-half