Ringgit could be more well-positioned in the medium term


HIGHER commodities and crude oil prices should benefit the ringgit gain more than the likes of the Thai baht and Philippine peso as it may be the more lasting legacy of the Russia-Ukraine conflict.

As a major exporter of commodities, the local unit could be more well-positioned in the medium term compared to other Asian counterparts, said OCBC Bank Bhd foreign-exchange strategist Terence Wu.

He expects any gains in the US dollar-ringgit pair due to this conflict to be capped at 4.2200 and the ringgit will not be able to detach itself from the broader Asian currency weakness due to the global risk-off environment.

“However, so long as this remains a localised conflict within Ukraine, the direct impact on the Asian economies through trade and economic links should be limited. This should then imply that the negativity faced by the Asian currencies should also be relatively short-lived.

“For now, we are watching equity flows for any signs of contagion, but a deluge of equity outflows from Asia and Malaysia is not the base case for now,” he told The Malaysian Reserve (TMR).

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the ringgit should be positive as higher commodity prices such as crude oil, liquefied natural gas and crude palm oil would be supportive for the Malaysian economy.

“Nonetheless, the ongoing Ukraine war, if prolonged, could result in risk-off sentiment becoming more prevalent. So downside risks to the ringgit are also visible,” he told TMR.

Precious metals like gold have gained from the conflict rising to US$1,889 (RM7,933) a troy oz last Friday from around US$1,797 at the end of January.

Mohd Afzanizam said two main issues are driving up gold — one is inflation which is already being priced in and now the conflict in Ukraine.

“Should the military aggression be prolonged it might have an impact on global economic growth.

So the case to hedge against uncertainties using gold is a clear cut and the prices might stay elevated,” he added.

OCBC Bank economist Howie Lee told TMR gold is edging higher due to the Ukraine crisis but he thinks the upside might be capped as the US Federal Reserve is due to commence its rate hike cycle from next month.

The geopolitical risk from the Ukraine-Russia tension has led to a further rise in global commodity prices. For many countries, inflation has been one of the factors which could influence growth outlook.

This was mainly linked to the supply disruptions as a result of the global health crisis, which led to a shortage of labour and raw materials and logistical delays. Firms also increased selling prices, passing some of the cost increases to the end consumers.

MIDF Amanah Investment Bank Bhd Research director and head of research Imran Yassin Md Yusof said while he expects markets like Malaysia will see downward pressure in the next few days, he does not expect it to be prolonged.

“This is as wars and conflict do not have a profound impact on the markets, as long as earnings of corporates remain intact. Based on our observation, the FTSE Bursa Malaysia (FBM KLCI) either recovered or was then affected by other issues (such as in oil price slump towards the end of 2014 and myriad of issues in 2015).

“We maintain our end-2022 FBM KLCI target of 1,700 points for now, as we expect the Russia-Ukraine conflict would engender limited macro and corporate earnings fallout to our region and Malaysia in particular,” he wrote in a report last week.