‘Ringgit could be back at 4.10 to dollar before H1 2018’

PETALING JAYA: The ringgit, which has been the best-performing currency in Asia ex-Japan so far in the second quarter with a 2.5% gain against the US dollar, could return to its “fair value” of around 4.10 before the first half of 2018, according to Standard Chartered Global Research.

The ringgit was 0.1% weaker at 4.3275 against the greenback at 5pm yesterday. It has strengthened 3.6% year to date.

Standard Chartered noted that 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, however, has been weak sentiment, which now seems to be improving, it said.

Foreign investors have been net buyers of Malaysian equities for four straight months, with net inflows of US$2.2 billion (RM9.3 billion) year to date.

“Perhaps more importantly for the ringgit, foreign investors also turned net buyers of Malaysian debt in April,” said Standard Chartered.

It said the improved sentiment and flow picture has been as much a result of domestic factors (allowing foreign investors to hedge up to 100% of ringgit exposure without documentary evidence) as of global factors (continued inflows to emerging markets leading to stretched valuations elsewhere).

“Given the scale of portfolio outflows in the past four years, there is significant room to catch up, which should support further ringgit gains,” it added.

Standard Chartered opined that while a stronger ringgit might be seen as a signal of confidence in the domestic economy, Bank Negara Malaysia may aim to rebuild its forex reserves more determinedly at some point.

The country’s forex reserves are currently at its lowest in 11 years, after accounting for the central bank’s position in the forward book of net short US$17.7 billion as at end-March.