Stanchart Expects Malaysian Ringgit To Trade Range-Bound This Year

KUALA LUMPUR, Jan 22 (Bernama) – Standard Chartered Bank (Stanchart) expects the Malaysian ringgit to trade range-bound against the US dollar at between 4.10 and 4.30 this year. Divya Devesh, head of ASEAN and South Asia foreign exchange research, said the ringgit remained undervalued with little catalyst for recovery as the portfolio inflows remained weak amid fiscal concerns and further declines in Malaysia’s bond weights. “We are ‘neutral’ on the ringgit on a short-term (three months) and medium-term basis (12 months) due to range-bound trade with one-way depreciation and one-way appreciation. “We forecast the ringgit at 4.25 in mid-2019 and 4.30 at the end of the year,” he said at a media briefing on the 2019 global outlook here Tuesday. He said since 2013, the Malaysian market had not really seen foreign inflow in a very big manner, particularly in the bond market which had restrained the ringgit's appreciation. From the perspective of external demand growth, which is going to be weaker this year, he said Malaysia, as a small and open economy, would be impacted with a slowing export. “Despite still registering a sizeable account surplus, there is a deterioration if global growth weakened further as it would put some pressure on the Malaysian economy. “The low commodity prices for crude palm oil and energy also does not help,” he said. On a positive note, Divya said Stanchart forecast Malaysia's gross domestic product to grow at 4.9 per cent this year, a respectable growth, while inflation – estimated at 1.9 per cent this year – was not an issue. Hence from the valuation point of view, he said, the ringgit was still relatively attractive and undervalued but the performance would depend on the US dollar movement this year. On the broader US dollar view, Divya said the currency was overvalued by 10 per cent but the challenge for market participants was that there were not many other currencies to buy against the dollar at this point. In 2018, the US dollar was supported mainly by growth divergence between the US and the rest of the world as well as the Federal Reserve's move to hike interest rates four times. However, the divergence seemed to be ending with the country is catching down with the rest. Thus the fund flows were not expected to go back to support the greenback, he said. He said Stanchart was looking at two interest rate hikes from the Fed, which would probably be in the second half of the year. “The market realised that this was the end of the Fed hiking cycle. It was also observed last year, at the end of the cycle rate hike, that it was not as US dollar supportive as at the beginning of the cycle. “Both from growth divergence and monetary policy points of view, we do not see these factors being dollar supportive in 2019,” he explained. Divya said it was not recommended to sell the US dollar against any currency as it took a lot more nuanced story and idiosyncratic factors to matter for the foreign exchange market. “Need to find a good local story to sell the dollar. We do not recommend buying the euro against the US dollar due to political problems, or buying pound sterling following the ongoing discussions on Brexit. “But we like (the idea of) selling the dollar for the Japanese yen, as there is a real lead differential between the two currencies and the real lead spread is falling,” said Divya. On the emerging market (EM) side, he said in the last two years, the currencies saw a pretty uniform performance. For example, in 2017 all Asian currencies strengthened against the greenback while last year, all these currencies weakened against the dollar, he explained. However, he said a divergence was expected in the EM currencies’ performance this year, whereby some currencies would be stronger while others would be weaker against the greenback. Divya said currencies that were growth driven, equity flow driven and related to the tax cycle and had a very close link to China were going to underperform in the broader environment of the global growth slowdown. Those falling in this basket included the Korean won and Taiwan dollar, he said. “We like currencies that are domestic demand driven in nature and more bond flows driven such as the Indonesian rupiah and Indian rupee,” he added. Stanchart has a bullish view on the Chinese yuan. Divya said it targeted the currency to strengthen to 6.65 against the greenback this year despite consensus expectations of between 6.8 and 6.9, on the back of the Chinese authorities’ strong intent to keep the currency stable against the US dollar amid the ongoing trade discussion in order not to disrupt negotiations. Portfolio inflows into China this year from foreign investors were expected to be about US$150 billion, including bonds and equity, he added. -- BERNAMA