Investors bet ringgit heading for better times
An unexpected rally in the ringgit to a 10-month high is spurring investors to bet that one of Asia’s most-improved currencies may be headed for better times.
The ringgit’s undervaluation, stronger-than-expected exports and a recovery in global oil prices have fuelled further gains after the currency climbed 3% last quarter in Asia’s best performance. That’s a far cry from January when it plunged to an almost two-decade low following a crackdown on currency speculators which contributed to US$11bil in outflows from the bond market.
BNP Paribas Asset Management and Schroder Investment Management Ltd are wagering on gains in Malaysian bonds and the ringgit after a recent jump in exports. Scotiabank and Standard Chartered Plc say the currency is undervalued, while Nikko Asset Management Ltd anticipates the sizable current account surplus will support the ringgit.
“We see the macro story as still relatively compelling given high growth and relatively low inflation,” said Jean Charles Sambor, London-based deputy head of emerging-market fixed income at BNP Paribas Asset Management which oversees about $700 billion. “Inflows should resume soon, so we are constructive on both the rates and the foreign exchange markets.”
Scotiabank forecasts the currency to rise to 4 against the dollar in the coming months due to undervaluation in both the nominal and real effective exchange rates, according to a note dated Sept 8. Standard Chartered estimated the real effective exchange rate is well below the historical average.
The ringgit rose to a 10-month high of 4.1825 per dollar this month, leading an advance in Asian currencies.
A rally in April lost momentum, leaving the currency wedged between 4.25 to 4.35 in the next four months. The currency was steady at 4.1932 per dollar as at 10.46am local time.
“In an environment of stronger global growth and higher commodity prices, Malaysia should see further improvement in its exports,” said Rajeev De Mello, head of Asian fixed income at Schroder Investment which oversees about US$650bil globally. “The ringgit rally could continue for longer.”
The exchange rate is a reflection of fundamentals and the ringgit should mirror Malaysia’s economic strength, central bank governor Tan Sri Muhammad Ibrahim told reporters in Kuala Lumpur Tuesday.
PineBridge Investments is less convinced, warning the currency has little support beyond technical factors while the prospect of an interest rate hike from Bank Negara Malaysia will weigh on the nation’s bonds. Six of 12 economists surveyed by Bloomberg expect the benchmark rate to rise at least 25 basis points by end-2018.
“The ringgit may offer some value versus other Asian currencies such as the baht and the rupiah in the very near term,” said Anders Faergemann, a senior fund manager in London at PineBridge which oversees about US$86bil globally.