Future of the Ringgit

The exchange rate of the currency in which a portfolio holds the bulk of its investments determines that portfolio’s real return. A declining exchange rate obviously decreases the purchasing power of income and capital gains derived from any returns. Moreover, the exchange rate influences other income factors such as interest rates, inflation and even capital gains from domestic securities. While exchange rates are determined by numerous complex factors that often leave even the most experienced economists flummoxed, investors should still have some understanding of how currency values and exchange rates play an important role in the rate of return on their investments.

“There are positive factors that still support the ringgit: decent economic growth expected for 2015, low Government external debt and a credible monetary authority that has led to relatively low inflation over the years,’’ said Zahidi.

From a yield perspective in 2015, the US dollar will continue to sustain its appeal as the Federal Reserve is preparing to normalise the prolonged ultra low interest rates, albeit in baby steps in the months ahead.

“While the ringgit is expected to stabilise once negative sentiment towards it fades, investors will be focusing on Malaysia’s medium-term growth prospects and also assess whether the ringgit will continue to provide attractive returns from both a yield and appreciation standpoint in the face of higher US interest rates, going forward.

In another report, CIMB Investment Bank did a study in March 2004 when the ringgit was still pegged to the US dollar and at that time, found the ringgit to be undervalued by around five per cent.

‘’Since then, Malaysia’s fundamentals have strengthened further. As such, I would think that the ringgit deserves a much higher value from current levels,’’ said CIMB Investment Bank director/regional economist Julia Goh.

Negative perception and sentiment can really damage the value of a currency, which would cause concern among businesses and investors.

While those businesses that receive their payment in US dollars may celebrate, the net effect may not be that great as there could be high import costs of components and raw materials.

The current depreciation of the ringgit should remain for a year. However due to low debt to GDP ratios and high saving rates the immediate effects are on exports and inflation.

For a country with a depreciated currency, exports will increase in relation to imports as exports become cheaper and imports become more expensive.

Fortunately Malaysia’s trade surplus is RM2.86 billion and it is going to increase due to currency depreciation. The depreciation of the ringgit might increase the inflation rate and raise the cost of living somewhat, but the good news is that Malaysia has been maintaining a ‘safe-side inflation level’ of below two per cent for quite some time.

The exchange rate, whether appreciating or depreciating, was not the issue but volatility of the currency which rendered conduct of business extremely difficult and affected the capital market and the banking sector when it came to mortgages and shares.

Read more: http://www.theborneopost.com/2015/04/11/impact-of-the-depreciating-ringgit/#ixzz3YDDZ7qX2

Goldman Sachs says buy ringgit

Goldman Sachs says buy ringgit
Published: 2011/03/31

Goldman Sachs Group Inc says buy Malaysia’s ringgit against the US dollar on speculation the central bank will favor currency appreciation to help fight inflation.

The ringgit strengthened 1.3 per cent this quarter to 3.0256 versus the greenback as of 11:47 a.m. in Kuala Lumpur, according to data compiled by Bloomberg, less than one sen short of a 13- year high of 3.0210 reached on March 25. A government report that day showed consumer prices rose 2.9 per cent last month from a year earlier, the fastest pace since April 2009.

The US bank recommended buying 12-month non-deliverable forwards, betting the contracts will rise 5.8 per cent to 2.9 per dollar from today’s rate of 3.0695, according to a research note today from Goldman Sachs’ currency analysts including London- based Thomas Stolper. A stop-loss order should be placed at 3.08 to guard against losses in the trade, it said.

“Inflation in emerging markets remains one of the most important themes in foreign exchange,” the report said. “We think Bank Negara Malaysia will respond primarily by allowing the ringgit to strengthen, a stance that is also supported by strong activity growth and a large balance-of-payments surplus of about 15 per cent of gross domestic product.”

Goldman Sachs revised its forecasts for the ringgit’s spot price in three, six and 12 months to 2.98, 2.90 and 2.85. -- Bloomberg


Read more: Goldman Sachs says buy ringgit http://www.btimes.com.my/Current_News/BTIMES/articles/20110331144824/Article/index_html#ixzz1IAoDt51K


Comment:  Maybe this is the reason for the strong performance of the Bursa today.

Strong Ringgit - Implications To Malaysia's Bond Market

April 27, 2010

The Ringgit Malaysia (RM) is one of Asia’s best performing currency,, appreciating by 7.0% year-to-date against the USD (As at 26 April 2010). In this article, we will take a look on the strong performance and its implications for investors.

INTRODUCTION
Ringgit was the best performing Asian currency. On a year-to-date basis, ringgit gained 7.0% against USD as compared to other Asian currencies. There were several reasons that we believe were likely behind ringgit’s strength. These includes a better than expected GDP growth in the fourth quarter and most importantly, Bank Negara’s unexpected move in being the first central bank in Asia to raise interest rate.

KEY POINTS

• Ringgit was the best performing Asian currency with a 7.0% gain y-t-d
• Better-than-expected 4Q 09 GDP growth & rate hike contributed to strong performance
• We expect ringgit to further appreciate on speculation of Yuan appreciation
• Big Mac Index indicates ringgit is undervalued
• Lesser bond issuance & higher demand for ringgit-denominated bond also help to support
• Malaysian investors should hold ringgit-denominated bonds and avoid global bonds

http://www.fundsupermart.com.my/main/research/viewHTML.tpl?articleNo=565



Ringgit expected to stay on uptrend

The ringgit is expected to stay steady next week, supported by year-end window dressing activities, dealers said.

They said more companies were now exchanging foreign currencies for the local unit to balance their year-end accounts.

"Positive economic news in the country and the region will also attract more capital inflows that will support the local currency to trade higher," a dealer said.

He also said that a weaker dollar performance has also encouraged players to unload their dollar position.

The ringgit is expected to trade above the 3.00 level against the US dollar next week.

During the week, the ringgit was firmer backed by gains in other regional currencies as well as window-dressing activities.

On Friday-to-Friday basis, the local unit was higher at 3.0930/0980 from 3.1340/1370 last week.

Against the Singapore dollar, it was firmer at 2.3783/3827 compared with 2.3862/3905 last Friday. It was also steadier against the yen at 3.7306/7384 from 3.7314/7354 previously.

The ringgit appreciated against the British pound to 4.7781/7870 compared with 4.8947/9000 last week and strengthened against the euro to 4.0636/0708 from 4.1670/1716 previously. --Bernama

Read more: Ringgit expected to stay on uptrend http://www.btimes.com.my/Current_News/BTIMES/articles/20101225094029/Article/index_html#ixzz19D2ircoa

Ringgit a favorite pick of Morgan Stanley

Ringgit a favorite pick of Morgan Stanley
Published: 2010/12/10


Malaysian ringgit and Singapore dollar are likely to outperform among Asian currencies next year, say Morgan Stanley strategists in research note.

They added that one of their top 2011 FX trade ideas is long MYR/JPY with target of Y29.0, about 8.6 per cent above current level near Y26.70.

“SGD and MYR are our favourite picks in Asia, as both are great reflation trades ... and both have hawkish central banks, strong economic fundamentals and very healthy balance of payments positions.”

Morgan Stanley economists see growth in Asia ex-Japan reaching 8.2 per cent in 2011, slowing only moderately from 9.5 per cent expected for 2010.

Another plus for MYR is potential benefits from rising commodity prices, since Malaysia is the only net commodity exporter in the region, say the strategists, who think INR, THB and IDR look overvalued and may lag in 2011 among Asian currencies.

Risks to Asian currencies include global “risk-off” events, potential for lagged policy responses to regional inflation and risk of more capital controls, they add. -- Reuters


Read more: Ringgit a favorite pick of Morgan Stanley http://www.btimes.com.my/Current_News/BTIMES/articles/20101210102032/Article/index_html#ixzz17hWyBjT4

Thursday March 11, 2010

Stronger ringgit boosts Bursa

By IZWAN IDRIS and YVONNE TAN

starbiz@thestar.com.my

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%.

http://biz.thestar.com.my/news/story.asp?file=/2010/3/11/business/5839792&sec=business

Effect of possible Ringgit appreciation

By end-2010, we expect the ringgit to appreciate about 5% against the US dollar (to RM 3.24/USD). 

Beneficiaries will include:

• aviation (MAS, Air Asia) and
• the steel sector (Southern Steel, Kinsteel),

where there is a high proportion of USD-denominated costs.

Losers will include:

• exporters (Evergreen Fibreboard) and
• MISC.

Rubber glove manufacturers (Top Glove, Kossan) price their products in USD.  However, we understand glove players usually adjust prices to factor in currency movements. 

The prospect of an appreciating ringgit could further boost returns for foreign investors.


Ref:  HwangDBS Vickers Research

Ringgit weakest in more than a year versus Aussie

Ringgit weakest in more than a year versus Aussie

Tags: Australian dollar | Azrul Azwar | Bank Islam Malaysia Bhd | Bank Negara Malaysia | Canada | New Zealand | Ringgit | Weakest level

Written by Chong Jin Hun
Thursday, 08 October 2009 11:00

KUALA LUMPUR : The ringgit traded at its weakest level against a firmer Australian dollar in more than a year yesterday, after policymakers in Australia unexpectedly raised its key interest rate to 3.25% from 3%, prompting demand for the Australian dollar.

Investors tend to park their money in countries with higher lending rates to capitalise on higher returns.

The ringgit weakened as low as 3.0619 versus the Australian dollar at 5.10am yesterday before strengthening to 3.0432 at 10.16am. A day earlier, the ringgit was traded at 3.0587 against the Australian dollar, the weakest in 14 months since August 2008, compared to the 2.2824 level seen in February this year

Economists said the surprise move by Australian lawmakers could result in similar initiatives among other commodity-based economies such as New Zealand and Canada.

“Countries that may follow suit could be other commodity-based economies, “ Bank Islam Malaysia Bhd senior economist Azrul Azwar told The Edge Financial Daily yesterday.

In Malaysia, while commodities like palm oil, and oil and gas, constitute a crucial component of the nation’s economy, Azrul said the country should not be regarded as a commodity-based entity.

Meanwhile, an improving economic climate in Malaysia is expected to see a stronger a ringgit versus a weakening US dollar.

Azrul said as recovery in the broader landscape was still tentative, a rapid appreciation of the ringgit might have a negative impact on the nation’s export competitiveness. However, a stronger ringgit could be one of the contributing factors in containing imported inflation.

“With increasing signs of improving economic conditions in Malaysia, and expectation of a resumption of positive GDP (gross domestic product) growth by the fourth quarter of 2009, the way forward for the ringgit is to strengthen.
“I think it is prudent to let market forces dictate the level of the ringgit but at the same time we should exercise an orderly and gradual strengthening of the ringgit,” he said.

Bank Negara Malaysia had pegged the ringgit at 3.80 against the US dollar on Sept 2, 1998 during the Asian financial crisis then. The fixed-exchange rate policy was scrapped on July 21, 2005, and replaced by a managed-float system which allows the central bank to monitor the ringgit’s value against a basket of currencies.

An interest rate hike in the US would trigger a sharp rebound in the US dollar. In its latest “Standard Chartered Global Focus” report, the bank said it did not foresee US policymakers initiating a rate hike throughout 2010.

“We think this is unlikely. We also believe that the US and the UK will continue to run wide fiscal deficits through 2010 — far larger as a share of GDP than those in the EM (emerging-market) economies. This, combined with ultra-loose monetary policy, may put continued negative pressure on both currencies,” Standard Chartered said.


This article appeared in The Edge Financial Daily, October 8, 2009.