‘RM4.10 POSSIBLE BEFORE H1 2018’
Supportive factors have been in place for some time, says Standard Chartered Bank
THE chance for the ringgit to return to a fair value of around RM4.10 versus the US dollar has increased and may happen sooner than the targeted first half of next year, says Standard Chartered Bank.
Its Asia FX strategist Divya Devesh described the ringgit as the best-performing currency in Asia except Japan in the second quarter so far, having gained some 2.5 per cent versus the greenback.
“Ringgit-supportive factors have been in place for some time now — exceptionally attractive valuations, underweight foreign investor positioning and improving external balances.
“The key hurdle has been weak sentiment, which now seems to be improving,” she said.
This improved sentiment and flow has been a result of domestic factors (allowing foreign investors to hedge up to 100 per cent of ringgit exposure without documentary evidence) as well as global factors (continued inflows to emerging markets leading to stretched valuations elsewhere).
Foreign investors have been net buyers of Malaysian equities for four straight months, with net inflows of US$2.2 billion (RM9.54 billion) year-to-date.
Foreign investors also turned into net buyers of Malaysian debt in April.
“Given the scale of portfolio outflows in the past four years, there is significant room to catch up, which should support further ringgit gains,” she said.
While a stronger ringgit might be seen as a sign of confidence in the domestic economy, Divya said Bank Negara Malaysia may aim to rebuild its foreign reserves more determinedly at some point.
Malaysia’s FX reserves are currently at their lowest in 11 years, after accounting for the central bank’s position in the forward book of net short US$ 17.7 billion (as of end-March).