HSBC Global Research forecasts the ringgit to be at RM4.68 against the greenback by the end of this year.
KUALA LUMPUR: A revamp in the fuel subsidy policy for RON95 petrol can lead to bigger gains for the ringgit in the foreign-exchange (forex) markets, says HSBC Global Research’s head of Asia forex research Joey Chew.
Otherwise, the ringgit is anticipated to remain stable near the current exchange rates with respect to the US dollar and other major currencies.
Chew said the ringgit has remained at a stable level with respect to the US dollar since February 2024.
“This (the stability) stands out as the rest of Asia has continued to face weakness against the US dollar – so in this sense the ringgit has turned out to be an outperformer. Going into the rest of this year, we see certain Asian currencies recovering some lost ground against the US dollar,” she said at the HSBC Second-Half 2024 Asian Outlook briefing yesterday.
Since the ringgit did not really concede much ground in the last few months, she said it would also make sense that it does not actually have that much to rebound again, which should lead to continued stability in the US dollar-to-ringgit exchange rate.
Chew also took note of trade recovery which has been relatively slow in Malaysia with respect to balance of payments.
“Hopefully, this will broaden out in the coming months but it might not necessarily translate into a pick-up in the forex conversions. In the last couple of months, the government-linked companies may have already brought forward their forex conversions (into the ringgit).
“Looking at forex reserves, some of the smoothing activities or containment policies could have been done out of the forex forward book rather than the reserves themselves,” she said.
The ringgit may be an outperformer for now while many other Asian currencies are weak, but HSBC Global Research said the ringgit may become an underperformer later when others recover.
“Bank Negara probably needs to reduce its large short forex forward position to the tune of US$27bil later,” it noted.
HSBC Global Research forecasts the ringgit to be at RM4.68 against the greenback by the end of this year, which is near current levels. “Something that may help the ringgit later is the ongoing change to the fuel subsidy programme. This is important for fiscal sustainability.
“For the ringgit, there could be a direct impact if higher prices help to curb consumption. Malaysia’s trade deficit in petroleum products is now at an all-time high,” HSBC Global Research said in its note.
Meanwhile, the research house said there are potential upside risks to its gross domestic product (GDP) growth forecast for Malaysia this year.
“We have a 4.5% GDP growth for Malaysia this year which is slightly above consensus and there are upside risks to this looking at how the economy has performed of late – it is still very robust with the many foreign investments coming into the country,” said its chief Asia economist Frederic Neumann, who is also expecting a pick-up in trade in the second half of the year.
While Malaysia could potentially achieve higher GDP growth than projected, HSBC Global Research also said Malaysia faces upside risks to inflation as well.
“If the upturn in the tech cycle can broaden out to Malaysia faster than expected, growth could accelerate in the second half of 2024,” HSBC Global Research said.
Commenting on equities, it said the Malaysian market has done well so far this year with the FBM KLCI up 9% in the year-to-date period in US dollar terms, while the other Asean markets remain in the red amid forex weakness and high bank rates.
In the broader context, it points out the improved performance and investor interest over the past year or so comes after three years of underperformance and relative disinterest from investors.
HSBC Global Research attributed the improved market sentiment to its rapid rise as a crucial link in the global tech supply chain. “Sectors ranging from equipment markers and chip designers to testers, construction companies and power producers are benefiting from an inflow of foreign investment,” it said.
Tourist arrivals and spending are poised to rise further while continued employment and wage growth remain supportive of household spending, it said.
It forecast company earnings to grow by some 17% this year and 9% thereafter in 2025 with a target for the FBM KLCI for end-2024 at 1,680 points.
