Ringgit, CPO bounce back, but not equity market

While external headwinds and trade dispute will continue to impact the global economy, there are still prospects for Malaysia


THE ringgit rose to an eight-month high and crude palm oil (CPO) gained to levels last seen three years ago, but the equity market languished in negative territory despite recovering from lows witnessed four years ago.

The local unit closed at 4.1065 against the greenback yesterday, higher than the year’s low of 4.2280, or 0.64% higher year-to-date (YTD). Positive developments in the US-China trade deals and inflows into the country’s equity and bond markets helped boost the local unit.

A surprise though was the CPO, which hit almost a three-year high after what has been a very challenging year for the country’s second-largest export commodity.

Sunway University Business School economist Prof Dr Yeah Kim Leng said notably, the US-China Phase 1 (P1) deal and Brexit uncertainty following the decisive UK elections have contributed to the ringgit’s strength.

“China’s strong November Purchasing Managers’ Index, together with the government’s recent multipronged measures to further boost the economy, further indicate continuing support for Malaysia’s external sector.

“With the US Federal Reserve more likely to stay on pause for an extended period as signalled by the all-time high of its stock markets, emerging-market currencies have room to strengthen on country-specific factors,” he told The Malaysian Reserve.

He said recent inflows and sustained foreign buying of government bonds have helped the undervalued ringgit to strengthen after a massive exodus from the country’s capital market by foreigners. The exodus also saw the local unit punished to lows of 4.228 this year.

Yeah also said the ringgit/US dollar rate may dip below 4.10 on the continuing positive short-term factors, particularly the portfolio flows.

Yeah said an uptick in inward foreign direct investment (FDI) could lend further support for the currency to strengthen below the 4.05 level.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the de-escalation of the US-China trade war has boosted the ringgit.

“As we know, the trade friction has been ongoing for more than a year and the P1, if materialises, should certainly help allay the concern on slower global growth.

“Nonetheless, we still think that the situation is fluid. I would wait for more concrete evidence before we change the narrative,” he said.

AxiTrader chief strategist for Asia Stephen Innes said the outlook for ringgit remains positive as trade risk abates.

“Still, I’m not expecting any explosive gains to 4.05 until we see a more significant chunk of US tariffs rolled back that will cause considerable improvement in Malaysia trade inflows.

“The P1 deal should benefit the ringgit in the form of a small pick-up in trade and equity inflows as business owners start putting capital to work as they become increasingly confident that no more tariffs will happen,” he said in a note yesterday.

He said the ringgit is very much dependent on equity inflows and higher oil prices.

Malaysia’s palm oil sector continues to rise as CPO closed at RM3,128 yesterday, up RM55 per tonne for the benchmark futures contract.

Prices jumped to the intraday high of RM3,140, erasing the nightmare of RM2,165 registered at the start of the year and the year’s low of RM1,916 recorded on July 10. CPO has added RM1,212 or 63.2% compared to the year’s lowest level, breathing hope to the country’s palm oil sector.

The sector has been reeling for the past two years. Lower stockpiles, higher demand and supply constraints, especially with the utilisation of the commodity as a green fuel mixture, had boosted CPO prices.

But the equity market was a disappointment despite the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) having recovered from the 7% drop.

The main index closed at 1,615.67, but still 4.43% lower YTD. It sank about 7% to lows of 1,548.45 in October, dropping the equity market to the worst among modern

markets. The recent recovery was helped by inflows of foreign funds looking to cash in on the cheap local stocks.

AMMB Holdings Bhd is projecting consumer- and tourism-related industries as potential growth areas besides the rollout of projects in the construction and infrastructure projects for next year.

AMMB group CEO Datuk Sulaiman Mohd Tahir said while the external headwinds and the USChina trade dispute will continue to impact the global economy, there are still prospects for Malaysia.

“The 2020 national budget is also expected to act as a catalyst, given its strong focus on development expenditure to support growth and improve sentiments.

“As an attractive investment destination, Malaysia is set to continue to benefit from FDI,” he said in a release yesterday.

Approved FDI for the first half of the year increased by 97% to RM49.5 billion from RM25.1 billion in the same period last year.

He added that the ringgit’s outlook remains tied to trade relations between the US and China.

“Should trade negotiations prove favourable, this could see a stronger yuan against the US dollar, which would bode well for the ringgit to strengthen.

“While challenges will persist for the banking industry, I remain positive on the sector and expect to continue to see improved policy certainties and better clarity,” he said.