Ringgit to hover around 4.09 to 4.13 against US dollar in September
KUCHING: The ringgit has been projected to hover around 4.09 to 4.13 against the US dollar in September, amidst volatility during the month which is expected to extend to the end of 2018.
According to AmInvestment Bank Bhd (AmInvestment Bank), from past records, equities markets tend to hit choppy waters in September and the volatility this time around is to unlikely end this month.
“A similar trend is expected this month, with volatility likely to be much stronger than normal. Given that this year the US will face midterm election, we looked at the past behaviour of the US stock market and selected markets during the mid-term election,” the research firm said.
“Between 1990 and 2014, the US went through seven mid-term elections. Out of these seven, the S& P fell four times and rose three times in September while in the final quarter, it rallied six out of the seven mid-term elections.
AmInvestment Bank thus concluded from the past outcomes that any correction in September is more likely to be temporary, while the impact on selected markets was mixed.
“With volatility on the table, the ringgit s expected to hover around 4.09 to 4.13 against the US dollar in September, with the possibility to reach 4.15.
“Looking at the 10-year Malaysian Government Securities (MGS) yield, it is expected to linger around 4.02 per cent to 4.07 per cent supported by the shortage of private debt securities ( PDS) issuance by RM20 billion to RM70 billion while the issuance of govvies remains at RM103 billion,” the research firm said.
“Besides, MGS yields should continue to be well supported by onshore real money demand.”
AmInvestment Bank highlighted that for the KLCI, it is expected to trade between 1,775 and 1,887 in September with the downside around 1,750.
A similar trend is expected this month, with volatility likely to be much stronger than normal. Given that this year the US will face mid-term election, we looked at the past behaviour of the US stock market and selected markets during the mid-term election.
The research firm further noted that the choppy trend in the KLCI can be welcoming to some investors as it presents opportunities to make some profit.
“Of course, investing into equities can be intimidating, especially when stock prices fluctuate. So the strategy should be to look at long-term goals, i.e. ‘ buy- and-hold’ and to cushion from big shocks by spreading out the portfolio, taking advantage of averaging when prices are low.”
AmInvestment Bank also expected the volatility this time to unlikely end in the month of September, and instead stay till end-2018, driven by various issues that are still simmering, starting with the US Fed.
“The Fed is expected to raise rates by 25 basis points ( bps) on September 27, while the postmeeting statement will be unveiled on September 26 with comments from the US Fed chair, which are crucial as these will determine the Fed’s views on the next rate hike in December. We are in line with the odds of another 25bps hike in December.”
Also topping AmInvestment Bank’s list is the ongoing trade war between the US and China.
According to the research firm, it remains unclear if the US will proceed with its threat to slap further tariffs ahead of the November mid-term election.
“Also there are no clear signs of China negotiating with the US until after the mid-term election, a time which Beijing feels it may have a better edge to negotiate.”
“For now, we view the trade war as ‘abstract’, only hurting some of the industries and not across the board since it is not full blown.
“But the trade war storyline will remain in the fourth quarter of 2018 (4Q18).”
AmInvestment Bank further noted that efforts to renegotiate the North American Free Trade Agreement (NAFTA) could remain a challenge.
“While talks between the US and Mexico have proceeded, and a deal could be reached within 90 days, negotiations with Canada appeared to have hit a sticking point. Meanwhile, European trade talks remain risky and may be hurt by the 25 per cent tariffs on European autos and others while negotiations are underway.”
As for Iranian oil sanctions, AmInvestment Bank highlighted that these are due to start in November.
“The Trump administration plans to remove all Iranian oil from the market, which is about 2.3 million barrels a day. Estimation suggests the possibility of cutting one million barrels from the market by end-2018.
“But the risk of squeezing supply will add upwards pressure on oil prices, apart from triggering tension with the other five countries in the Iran nuclear deal.”
The research firm also said other issues pending are the Italian budget, due end-September, that is likely to be argumentative with an expected rejection by the European Commission, the UK’s progress with respect to its exit from the European Union next March, especially with the Conservative Party’s conference starting on September 30, the tone which is expected to influence the course of Brexit talks.
“The US mid-term election is expected to add to the volatility. The US bond market is expected to exhibit risk in September.”
AmInvestment Bank