kuala lumpur: At the beginning of 2022, the outlook for both Ringgit and Bursa Malaysia looked promising as the pandemic threat waned.
As the first trading day of the new year ended (January 3), the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) was at 1,549.05, while the local currency was RM4.1715 against the US dollar.
Despite war erupting in Ukraine in late February, the ringgit and local stock exchanges continued to thrive until headlines for stronger U.S. (United States) policy bolstered the dollar and threw markets into turmoil.
Responses to external shocks were largely consistent with the situation overseas, where capital flight is occurring around the world.
When inflation is devastating
On November 4, 2022, the ringgit fell to a historic low of RM4.7465 against the US dollar. This is because inflation has started ripping through the world and within the country.
This was the worst level since the currency hit RM4.7125 on January 9, 1998 as a result of the Asian currency crisis. The major currencies pound, euro and yen also hit record lows.
The biggest crash in currency markets, including in Malaysia, put pressure on central banks to raise interest rates as prices skyrocketed.
Firdaos Rosli, chief economist at Bank Islam Malaysia Bhd, said that apart from being hit by the US Federal Reserve’s bet on further interest rate hikes to keep inflation in check, the Fed’s (Fed) said widening interest rate differentials were putting pressure on local bonds. Fund Rate (FFR) and Overnight Policy Rate (OPR).
The Fed has raised its policy rate by 425 basis points (bps) since March this year, while the OPR has risen by 100 bps.
This scenario resulted in an FFR range of 4.25-4.50%, higher than the previous OPR of 2.75%. The Fed continues to work to contain inflation, which continues to rise despite his easing since July 2022.
Mr Firdaos said the recent drop in foreign portfolio investment in Malaysia has also put pressure on the ringgit.
From September to November 2022, foreign capital flows were negative in both bond and equity markets.
He said foreign capital inflows into equities were positive at RM5.68 billion in the first 11 months of 2022, but foreign investors sold RM12.35 billion worth of Malaysian bond holdings during this period. Stated.
“Emerging market currencies will continue to come under pressure as the Federal Reserve (Fed) shows no intention of changing course as long as US inflation continues to trend well above its 2.00% target rate. ” he told Bernama.
As of 23 December 2022, the Bursa Malaysia has fallen 4.8%, while the ringgit has fallen 6.0% against the US dollar year-to-date.
Nevertheless, he believes the ringgit has recovered some losses after the second week of November 2022. Therefore, he said he could end the year within the range of RM4.46 to RM4.49 against the local currency unit the dollar.
not all doom and gloom
Citing the performance of the ringgit on December 19, Firdaos said the ringgit fell against the Hong Kong dollar (-6.1%), the Singapore dollar (-5.4%) and the Thai baht (-1.4%), but the euro (0.9%) fell. %), Chinese Yuan (3.4%), British Pound (4.9%) and Japanese Yen (11.9%).
“Similar trends can be seen in other currency pairs such as Australian dollar (2.1%), Indonesian rupiah (3.0%), Korean won (3.1%) and Indian rupee (4.4%),” he said. .
Mr Firdaos also said the weaker ringgit could be a catalyst for boosting Malaysia’s net export growth amid slowing import growth.
In November 2022, export growth will catch up with import growth for the first time year-on-year (both up 15.6%), suggesting good near-term trade balance growth.
He said this could support gross domestic product (GDP) in the fourth quarter of 2022 and then for the full year 2022, forecasting growth of 8.1%.
“Malaysia’s GDP growth is projected to be 4.5% in 2023 and 4.7% in 2024.
“A stronger re-opening of the Chinese economy could provide a much-needed buffer to the ringgit’s positive outlook at the end of the year,” he said.
Meanwhile, he believes FBM KLCI could end 2022 at the 1,560 level.
After the 15th general election, there was also a smooth transition of government led by the 10th Prime Minister Datuk Seri Anwar Ibrahim.
A unified government, a broad coalition of various political parties, was formed for the first time in the country’s history as a result of a hung parliament.
Longer term, a coalition could mean more consultative policies and more checks and balances, which would be good for markets, he added.
Outlook for 2023
Juwai IQI chief economist Shan Saeed expects the ringgit to remain structurally stable in 2023 as the US dollar enters depreciation mode.
“Based on the assumption that rising oil prices, economic stability and above all a weaker dollar will return to the market, the ringgit should be between RM4.10 and RM4.37 in 2023.
Juwai IQI expects the local unit to become one of the top currencies alongside the Vietnamese dong, Indonesian rupiah, Thai baht, Brazilian real, South African rand, and Philippine peso in 2023, when the Fed begins quantitative easing. (QE5) cut interest rates by October-November 2023 as the U.S. economy plunges into a deep L-shaped recession,” Shang explained.
He said the ringgit has gained 8.14% against the US dollar over the past five weeks.
Meanwhile, CGS-CIMB Securities Sdn Bhd expects FBM KLCI to rise by 8% by the end of 2023 to 1,633 amid potential returns of foreign capital, M&A activity and clarification of new government policies . – Bernama
