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Wednesday, 12 July 2017

(The Star) Ringgit outlook will become more positive: US$1=RM$4?

KUALA LUMPUR: The outlook on the ringgit is becoming more constructive, with Standard Chartered Bank (StanChart) expecting the currency to gradually strengthen towards RM4 per US dollar over the next one to two years.

Until then, the ringgit is expected to range bound between 4.20 and 4.30 against the greenback at least through 2017, says StanChart head of fixed income, currencies and commodities investment strategy Manpreet Singh Gill.

“What’s interesting about the ringgit is two parts: first, its sensitivity to the broad movements of the US dollar, whereby Malaysia was (earlier) faced with the challenge of a strengthening US dollar. But our view is that the US dollar may actually soften a little, so that will take away one big headwind for the ringgit.

“The second part is the intrinsic ringgit factors – the ringgit is still as about as inexpensive as it has been since the 1997/98 Asian financial crisis, so it will take a lot of new bad news to push the ringgit lower from here,” Manpreet said at a briefing on StanChart’s global market outlook for the second half of 2017.

He pointed out that RM4.2 to RM4.3 per US dollar would be a fair target for the remaining part of the year.

“We have become a little bit more constructive over the next one to two years, whereby we expect the ringgit to move towards RM4 against the US dollar,” Manpreet said.

According to Manpreet, there was limited upside for the US dollar. While the greenback was likely to rise moderately in the short term, the risks were tilted to the downside in the medium term.

“Yes, interest rates are going up in the United States but that isn’t much of a surprise anymore,” Manpreet explained, noting that the market had pretty much priced in the impact of US interest rate hikes on the greenback.

Manpreet said StanChart expected the US Federal Reserve to hike interest rates at least two more times over the next year or so. This was pretty much in line with market expectations.

Meanwhile, Manpreet said he did not expect weak oil price to be as much of big drag on the ringgit as it was in the last two years. “Oil price is no longer a big drag on the ringgit. While it was one of the main reasons that pulled the ringgit down, I don’t think we will go back to those days,” he said.

Manpreet said oil prices would likely trend higher in the fourth quarter of 2017, with the possibility of returning to the above US$50-per-barrel level.

He said oil price plunge was an overeaction. “The markets were too bearish as people thought there was too much supply coming in. The reality is crude inventory is falling, and oversupply is diminishing,” Manpreet said, adding that demand for the commodity remained strong, driven by Asian markets.

Expectations of a more investment climate and strengthening ringgit would draw investors to Malaysia’s capital market, Manpreet said.

“Malaysian assets are quite attractive; and investors are getting the opportunity to buy them with a currency that is currently quite cheap,” he said, noting that capital inflows, in particular to bonds, and to some extent equities, were expected to offer some support to the strengthening of the ringgit.

On Malaysia’s bond market, for instance, a yield of 4% for the benchmark 10-year Malaysian Government Securities would give investors attractive returns if the ringgit was not expected to weaken further.

As for the country’s stock market, Manpreet said the outlook was also positive in tandem with that for regional markets.

“Malaysian equities should do well. It is a great dividend-yielding market and it is still one of the more sustainable one compared to other dividend-yielding markets,” he explained.

He, however, pointed out that StanChart expected South Korea to be the best performing market in the region in the second half of this year. This will be followed by China.

“As an investor, I will still want to look for the market where I can get the best returns. In that sense, I will look for high beta market.

“At present, we think the high beta markets with the most positive outlook are South Korea. This will be followed by China,” Manpreet said.