‘RINGGIT HAS GREATER RESILIENCE’
Rabobank cites country’s strong economy and current account surplus as well firmer global oil price
THE ringgit is better insulated than other emerging market currencies in the face of a global sell-off that is likely to intensify in the coming months amid United States trade protectionism and interest rate hike, said analysts.
The local currency’s resilience is due to Malaysia’s strong economy, current account surplus and firmer oil price, they said.
The Netherlands-based Rabobank, in its “emerging markets’ vulnerability heatmap”, indicated that the sell-off wave would affect Western emerging markets first before coming to the East.
Its unit, RaboResearch, said if the sell-off became broad-based, Latin America would be generally the most vulnerable region while Asian currencies looked better insulated.
“The Turkish lira and Argentine peso are most vulnerable to the sell-off, with economic woes and market factors mixing together to produce a potent cocktail of currency vulnerability,” it said in a note.
The research note ranked currencies by taking into account economic indicators, debt vulnerability indicators and financial market index (volatility, liquidity and hot money). It showed that Malaysia has a positive aggregate vulnerability score or a less vulnerable backdrop.
Malaysia’s economy performed well with low inflation and its exposure to non-ringgit denominated loans was limited, making it less vulnerable to a global selloff compared with the Indian rupee and Latin America and South African currencies.
RaboResearch said the underperformance of emerging market currencies this year was unlikely to turn around substantially without a significant pullback in the US dollar.
“We would argue that if the US Federal Reserve does follow the tightening path, then another round of emerging market weakness is likely to occur.
“Furthermore, uncertainty regarding global trade tensions remain a dark cloud over emerging market countries and the sky is unlikely to clear up anytime soon,” it added.
FXTM research analyst Lukman Otunuga said with Malaysia boasting a current account surplus, the ringgit was insulated compared with other emerging market currencies.
“The local currency has held its ground against the US dollar in recent weeks based on the bullish sentiment towards the economy.”
He, however, warned that investor confidence remained highly sensitive to the US-China trade tensions.
“Any fresh signs of escalating tensions between the world’s two largest economies could spark risk aversion.”
Stock market analyst Nazarry Rosli said the ringgit would be well supported by the strong oil price.
“Foreign inflows, which have resulted in a stronger ringgit in recent weeks, were brought about by higher oil price.
“As a result, the FTSE Bursa Malaysia KLCI is still trading near the psychological level of 1,800 points,” he said.