Thursday March 11, 2010
Stronger ringgit boosts Bursa
By IZWAN IDRIS and YVONNE TAN
PETALING JAYA: The ringgit is on a roll after Bank Negara raised interest rates last week amid mounting evidence the nation’s economic recovery is gaining traction.
And the currency strength has rubbed off on the share market, propelling the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) to a fresh two-year high of 1,328.22 points at the close yesterday.
“Many thought that Indonesia or South Korea would be the first to hike interest rates but Malaysia was the one which started the ball rolling in the Asian region,” Datuk Lee Kok Kwan, deputy chief executive officer, group treasury and investments at CIMB Group, told StarBiz yesterday.
As a result, “funds are flowing back in,” he said.
The ringgit had risen 1.5% against the US dollar since March 4 to 3.321 yesterday after Bank Negara increased its key overnight policy rate (OPR) from its historic low by 25 basis points to 2.25%.
Year-to-date, the local currency had shot up 3.18% yesterday and was the best performing currency in Asia ahead of the Korean won’s 2.9% gain over the same period.
The local unit’s performance against embattled European currencies was even more impressive, up 10% against the British pound and 8.7% against the euro since the start of the year.
Royal Bank of Scotland Group Plc, in a recent report, advised investors to buy the ringgit against the won and yen on expectations of further interest rate hikes here.
Its strategist Chia Woon Khien told Bloomberg yesterday that Bank Negara “could do a few more” rate hikes. “The question is whether they want to go straight to neutral level or stay a little dovish along the way,” he said.
OSK Investment Bank Bhd director and head of treasury Yeo Chin Tiong expects rates to “gradually” rise as the economy recovers. “Our house target for the ringgit is 3.20 versus the US dollar by year-end,’’ he toldStarBiz yesterday.
Meanwhile, RAM Ratings Services Bhd in its 2010 edition of its CreditPulse report said the ringgit was expected to strengthen to 3.20-3.30 against the greenback by end-2010.
It said there would be a “gradual” currency appreciation boosted by high current account surplus, international reserves and low inflation.
The stronger outlook for the ringgit, fuelled by rising rates and improving economy, has also boosted the appeal of local assets, especially for foreign investors.
At yesterday’s close, the FBM KLCI was up 4.36% since the start of the year. But the stronger ringgit means returns calculated in US dollar terms have shot up to 8.4% over the same period.
This made the local bourse the second best performer in the region behind Indonesia’s Jakarta Composite Index which gained 9%.
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