by AUFA MARDHIAH / Pic by MUHD AMIN NAHARUL
MALAYSIAN ringgit could reach RM4.36 against the greenback in the fourth quarter of 2022 (4Q22), according to Standard Chartered Malaysia (StanChart Malaysia).
“The reason for ringgit weakening in the last three to six months has a lot to do with interest rate differential between US and Malaysia, hence narrowing of differential between the two reflects the expectation of inflation,” StanChart Malaysia head Managed Investment and Investment Advisory Danny Chang said during the StanChart Global Market Outlook press conference on Wednesday.
In the shorter term, the scenario is that the continuity of tightening in the US will likely continue; while in the longer term, the views on the balance in terms of trades for Malaysia import/export has improved very significantly in the last decade. The trade improvements support the ringgit view especially now that China is reopening and bouncing back (should underpin ringgit strength),” Chang said.
He opined that from a valuation perspective, Malaysia has slightly lower earnings growth and higher PE valuation.
“It makes sense to divert some attention to China; this cycle correction continues to iterate importance for Malaysia to look at bond onshore equities for diversity which are far better than the diversity in Asian equity in Malaysia,” he explained.
StanChart is expecting inflation to ease gradually — the US Federal Reserve (Fed) is expected to raise rates by another 150 basis points to 3.25% by end of the year and the risk of US recession will rise significantly in the next six to 12 months due to the Fed’s restricted policy.
The second half of 2022 is expected to be dominated by three macroeconomics — US inflation, the Fed’s tightening policy (whether it will push the US economy into recession within six to 12 months), as well as China’s policy support (whether it will help the economy rebound — diverge from slowing US and European economies).
However, investors can navigate the uncertainty through add to bonds at the expense of equities, adding to income assets, or tilting equity focus to Asia ex-Japan, UK.
Meanwhile, StanChart Singapore head of Asset Allocation and Thematic Strategy Audrey Goh said that more than 100 countries are moving towards net-zero as efforts in reducing carbon footprint in the longer term.
“The opportunity relating to the net-zero transition is ongoing; by 2040, Singapore is planning to build internal combustion and cars to shift to electric vehicles (EVs), today there are more than 90% EVs on the road. Investors can actually look into it as an add-on.
“We are also moving towards a secure environment which will require secure connection — cybersecurity as a topic and concern will increase over time. This is also one of the key areas we’re going to highlight in a long-term perspective for investors to consider,” she said in the same press briefing.
On the FTSE Bursa Malaysia KLCI, she stated that the Asian equity region is preferred globally and is expected to outperform US, European Union and other developed regions.
“On the back of that, Malaysia’s inflation is quite high, we don’t see Bank Negara Malaysia actually heaving out business, unlike China which is adopting much more stringent covid lockdown. On the back of that, seeing relatively more capitalisation supporting more on India and China against Malaysia in which the equity is similar to any other equities in the region (decline significantly),” she added.