Expert says it is possible for the local note to reach below RM4 as US-China trade tensions seem diminishing

By SHAZNI ONG / Pic By MUHD AMIN NAHARUL

The ringgit could reach RM3.90 against the US dollar this year, its highest level since 2015, supported by optimistic outcome from the US-China trade negotiations, according to Rakuten Trade Sdn Bhd.

The ringgit broke the RM4 level to a dollar in January last year, signalling a recovery phase after weakening to RM4.4983 in 2017, its lowest since the 1998 Asian financial crisis.

Rakuten head of research Kenny Yee said it is possible for the ringgit to reach below RM4 against the greenback as trade tensions between the economic powerhouses seem to be diminishing.

“That would certainly give a boost to China’s yuan. From our studies, the movement of yuan is very close to the book of the ringgit and US dollar.

“So, if China’s yuan strengthens against the dollar, it would certainly pull up the ringgit against the US dollar,” Yee said in a media briefing on 2019 market outlook last Friday.

“Another possible factor is the inflow of foreign funds into the country. But to us, the prime factor would be the strengthening of the Chinese yuan,” he added.

Yee said the possible revival of the East Coast Rail Link and the Panda bonds offer from China would benefit the construction sector the most this year.

“If you look at the current government’s stance, I think they are more receptive towards all of mega infrastructure projects, provided that the cost is justified,” he said.

“The construction sector has experienced a bad round last year following the change of government. This year, we are seeing more positive talks within the construction sector,” Yee said, adding that these projects would create multiplier effect for the economy.

Yee also believes that the government should accept the Panda bonds offer.

“Malaysia is not a bankrupt country. We still have the capability to repay all of these borrowings. As long as all these monies are being channelled correctly, I don’t see why we cannot pay up the loans,” he said.

Yee expects Bursa Malaysia to reach 1,760 points by year-end based on 16 times market price-to-earnings ratio, backed by local and external factors and developments.

Yee also said Malaysia is a perennial safe haven and should be the preferred destination for foreign funds, citing that foreign funds are likely to leverage on cheap ringgit.

On corporate earnings, Yee said earnings growth will also be boosted by the banking and construction sectors due to possible revival of mega infra projects by the government, with an overall forecast of 2.3% this year compared to 4.9% recorded in 2018.

“Index-linked blue chips are ripe for pickings as most are owned by foreign funds and many are now trading at reasonable levels,” he said, adding that the recent liquidity on small/mid space should encourage more market participations.

Among attractive blue chips to buy this year are CIMB Group Holdings Bhd, Genting Malaysia Bhd, Hartalega Holdings Bhd, Press Metal Aluminium Holdings Bhd and Tenaga Nasional Bhd, while small-cap are Econpile Holdings Bhd, Kelington Group Bhd, Malaysia Building Society Bhd, Tri-Mode System (M) Bhd and Vizione Holdings Bhd.

However, he expects gaming-related stocks to be under pressure this year due to the government’s gaming tax proposal in the 2019 budget.