Affin predicts ringgit to be best-performing currency in 2024

by SHAUQI WAHAB

AFFIN Group and Affin Hwang Investment Bank Bhd are predicting the ringgit (RM) to be the best-performing currency in 2024 alongside the Japanese yen.

The Macro and Market Outlook 2024 report, presented by Affin Group chief economist Alan Tan Chew Leong and Affin Hwang Investment Bank head of research Loong Chee Wei, anticipates a prosperous year for Malaysia’s economy.

The event held at Menara AFFIN @ TRX on Jan 9 highlighted key factors contributing to this positive outlook.

Economic Expansion and Ringgit Performance

Affin Group president and group CEO Datuk Wan Razly Abdullah said the GDP forecast for Malaysia is set to increase to 4.5% in 2024, up from the estimated 4% in 2023, propelled by a recovery in exports, particularly in the electronics and electrical (E&E) sector.

Anticipating rate cuts in advanced economies and high foreign direct investment (FDI) in Malaysia in the second half (2H24), Wan Razly expects a stronger rebound, catalysing sentiment in the Malaysian equity market and potentially supporting a FTSE Bursa Malaysia (KLCI) rebound.

Wan Razly also said states such as Sarawak, Johor and Penang contribute a lot to Malaysia’s economic growth.

“We strongly believe these states will play a pivotal role in shaping Malaysia’s 2024 economic trajectory and the unique contributions deserve all of our attention.

“The economy diversification for example, going into renewables to energy coupled with strategic investments in downstream projects, and the establishment of a sovereign wealth fund have positioned Sarawak as a significant player in various sectors,” he said.

Meanwhile, the global Brent oil price is projected to rise to US$88 (RM407.44) per barrel in 2024, driven by demand growth from China and India, coupled with geopolitical tensions.

The ringgit is anticipated to appreciate from US dollar/RM4.60 (end of 2023) to US dollar/RM4.40-4.30 (in 2024).

Tan said either the ringgit or the Japanese Yen will emerge as the best-performing currency in the Asian region in 2024 because their economic fundamentals in 2024 will be a lot stronger.

He said the domestic demand, fuelled by robust household spending and recovering tourism, is expected to have a positive impact.

“There will be an improvement where we may see more tourists coming in, not just from China but also from the region that I think will translate into better tourism receipts and reflected in our country’s domestic demand, especially private consumption,” he added.

Wan Razly said this currency appreciation is attributed to external developments putting less pressure, a commendable economic growth trajectory and expectations of improved investor sentiment.

Meanwhile, Tan said despite global uncertainties, pockets of optimism exist, especially in China’s manufacturing sector, contributing to a positive outlook for the global manufacturing industry.

He also said the US Federal Reserve’s cautious approach to rate cuts suggests a healthy employment situation, indicating potential rate cuts only in 2H24.

The global trade is also expected to grow, driven by a turnaround in semiconductor sales, benefitting Malaysia’s export-oriented economy.

“We know that global semiconductor sales were weak in 2023, but if we were to look at the forecast by the Semiconductor Industry Association, we are expecting a sharp turnaround from 9.4% last year to a positive 1%,” he said.

On the impact of the current geopolitical tension and how the projection will be, Tan opined that the current account surplus will remain in the surplus position.

“When we look at Malaysia’s exports, we have a very diversified export market and product growth.

“Malaysia being a very open economy, we are highly reliant on trade. The export of electronics will continue to play an important role in sustaining the current account surplus position,” he said.

Sectors Overweight in 2024

Affin Group revealed sectors poised for growth in 2024, signalling confidence in Malaysia’s economic prospects. 

Sectors highlighted include construction, plantation, utilities, banking and property.

The construction sector anticipates accelerating infrastructure spending with projects like the RM10 billion Penang light rapid transit (LRT) and RM45 billion Klang Valley mass rapid transit 3 (MRT3), alongside rising demand for industrial facilities and renewable energy (RE) projects.

Presenting a list of potential mega infrastructure projects to be implemented in 2024 and onwards, Loong said a total of RM132 billion has been identified previously, but some of these projects have been delayed.

“So, this year we are more positive on the construction sector,” he said.

The plantation sector would benefit from a higher average selling price forecast for crude palm oil (CPO) in 2024, which is driven by lower global supply, particularly influenced by the El Nino phenomenon.

“But fortunately for Malaysia, we have more favourable conditions in terms of weather and we are expecting the production or CPO this year to be flat for Malaysia but declining for Indonesia, where they are impacted more by El Nino,” he commented.

As for the utility sector, it is expected to benefit from the expansion of RE generation capacity, the introduction of the energy exchange and the RE export mechanism under the National Energy Transition Roadmap (NETR).

Loong said the banking sector charts positive growth, which is fuelled by favourable economic conditions, FDI inflows, infrastructure projects, stable unemployment rates and a transition to sustainability. The banking sector is projected for a 5% year-on-year (YoY) loan growth in 2024.

As for the property sector, Affin is foreseeing robust sales of residential properties, improving profit margins and accelerated completion of new properties, especially when factoring in the upcoming mega infrastructures from the construction sector.

“I believe that if people make money in the stock market, they will look for alternative investments, and some of them will place it in the property market and property prices in Malaysia have been holding up,” he said.

Affin’s optimistic stance is grounded in expectations of accelerating real GDP growth (+4.5% in 2024E), a stronger ringgit (RM4.40:US$1 rate by the end of 2024), increasing FDI and portfolio fund inflows and positive corporate earnings growth (+10.5% YoY for KLCI stocks in 2024E).

While external headwinds may pose challenges in 1H24, leading to market volatility, Affin anticipates a rebound in 2H24.

Sarawak’s Potential Stake Increase in Affin Bank

In a separate development, the Sarawak State Financial Secretary is in discussions to acquire an additional stake in Affin Bank Bhd from the Armed Forces Fund Board (LTAT).

The state government owned 4.796% shares of Affin Bank as of Dec 29, 2023.

Affin Bank said LTAT, the major shareholder, clarified that discussions are ongoing, and any transaction will adhere to relevant rules and regulations.

Under regulatory requirements, LTAT is obligated to inform Affin Bank of any changes to its shareholding, and Affin Bank will make an announcement upon receiving notifications related to significant changes in its major shareholders’ holdings.