Gainers and losers of the stronger ringgit

The domestic unit is much like a double-edged sword that cuts both ways


The stronger ringgit is much like a double-edged sword that cuts both ways.

It brings relief to Malaysian corporates with large US dollar-denominated debt and companies reporting foreign-exchange (forex) losses due to the weaker ringgit-US dollar exchange rate, but makes exporters a little less cost competitive.

An improved local currency also makes outbound travel more affordable, while inbound tourism — especially from neighbouring Singapore — could be dampened by a stronger ringgit.

The outlook is also less bullish for local companies heavily invested overseas as foreign currency revenue is converted at a lower exchange rate, thus weighing down on profit margins.

Companies’ ability to pass on costs and have effective hedging policies against forex losses will determine how these players fare in the present currency scenario, while the pace and level of appreciation is also key.

Ringgit Beneficiaries

Debt-heavy companies: The ringgit rally is a welcomed relief for corporates with debt and borrowings denominated in foreign currencies, as a stronger local unit eases the repayment of these liabilities.

Some 67.8% of YTL Corp Bhd’s RM42.39 billion in borrowings is denominated in foreign currencies, while integrated plantation group IOI Corp Bhd has some 75.5% of its RM7.28 billion in borrowings made up of US dollar debt.

Only a portion of YTL’s non-ringgit debt is in US dollars (RM3.79 billion of a total RM28.76 billion), so how the ringgit fares against other currencies will determine the rate of exchange upon repayment.

Malaysia Airports Holdings Bhd, MISC Bhd, Sime Darby Plantation Bhd and Axiata Group Bhd also primarily take out loans in US dollars or other foreign currencies, and should register some easing in repayment as the ringgit is now below the RM4 level.

Companies exposed to forex losses: The ringgit was among the worst-hit Asean currencies when US President Donald Trump took office last year, as buyers pulled out of emerging markets in anticipation of Trump’s fiscal plans pointing to higher yields in the US markets.

Malaysian corporates that incurred costs in US dollars noted thinning margins as a result of the weaker exchange in early 2017.

That all looks set to change this year as the rally in the ringgit might have the legs to take the local unit all the way to RM3.75 next — after reaching the RM3.95 mark this week.

Meanwhile, the automotive sector is set to benefit from the stronger ringgit, according to analysts. Low-cost carrier AirAsia Bhd will also benefit in this scenario as fuel cost incurred by the group is in US dollars.

Outbound tourism and foreign workers: The undervalued ringgit has not only found its footing against the US dollar, but against regional currencies as well — potentially fuelling more outbound tourism this year if the local note continues its upward trajectory.

More Malaysians could look to travel, especially in countries where the ringgit is registering substantial gains helped by the Malaysian Aviation Commission’s move to introduce an Asean tier for passenger service charges at local airports to incentivise regional tourism.

The three million or so foreign workers in the country who represent an important driver to the economy — especially in the services and construction industries — will also benefit from the forex conversion when sending money back to their home countries.

Ringgit Losers

export-based companies: Plantation-based counters and glove manufacturers are anticipating an impact on earnings and higher forex losses as a result of the stronger ringgit.

Industry players are expecting a 10% reduction in the earnings of palm oil exporters — which include Sime Darby Plantation, IJM Plantations Bhd and TH Plantations Bhd — as a stronger ringgit could curb foreign demand for palm oil and palm oil products.

Glove makers such as Top Glove Corp Bhd and Supermax Corp Bhd — who rake in US dollar-denominated revenues — will likely see an erosion in margins this year due to the stronger ringgit, unless they can pass on the additional costs to consumers.

Investments abroad: Property players deriving non-ringgit sales from their projects abroad, institutional investors with their bulk of assets based internationally, and companies with operations abroad will be negatively impacted by the ringgit rally.

The extent of the impact will vary and be contingent on just how much the ringgit appreciates in the near-to mid-term.

Institutional investors like the Employees Provident Fund, Permodalan Nasional Bhd and Lembaga Tabung Haji all have invested abroad.


The stronger local note could dampen inbound tourism sentiment

In the meantime, property players Eco World Development Group Bhd, Sime Darby Property Bhd, SP Setia Bhd and IOI Properties Group Bhd have international projects under their portfolio.

Oil and gas players Hibiscus Petroleum Bhd and Bumi Armada Bhd also predominately derive their earnings in US dollars or foreign currencies, but the higher oil price environment should offset any forex losses.

Inbound tourism: Though the current ringgit scenario is likely to boost outbound tourism, the stronger local note could dampen inbound tourism sentiment, especially with regard to key tourist demographic Singapore.

According to a recent report by The Straits Times, the stronger ringgit-Singapore dollar exchange has curbed demand for the Malaysian currency.

Some money exchangers in Singapore are reporting a decline by as much as 30% for the Malaysian currency, the report added.

Singaporean nationals made up 13.27 million of the total 26.76 million tourist arrivals recorded in 2016.