MARC Ratings Bhd chief economist Ray Choy
KUALA LUMPUR: The ringgit is expected to strengthen further against the US dollar, driven by ongoing global monetary easing from major central banks and a sustained positive interest rate differential.
Malaysia Rating Corporation Bhd (MARC) chief economist Ray Choy said this upward trajectory has, in turn, attracted increased equity positioning by foreign investors in Malaysia and a rise in foreign holdings of government bonds.
He further said that a key aspect influencing global financial trends is the potential unwind of the carry trade -- a strategy involving borrowing at low cost in one currency to achieve higher returns from investments in another currency, particularly concerning the Japanese yen.
He posited that the anticipation of interest rate hikes in Japan would signal a potential end to the prolonged period of monetary easing.
"The resulting volatility in the yen is likely to persist as markets adjust to these changing dynamics.
"The impact of these global shifts is also visible in the bond markets, where both the United States and Asian yields have collectively declined, reflecting the cautious stance of investors amid lingering uncertainties,” he said during the Economic and Market Outlook: Opportunities Amid Stronger Growth and Monetary session held virtually today.
The session was part of the two-day MARC Malaysian Bond and Sukuk Conference 2024: Charting the Course for Malaysia’s Economy (MMBS 2024).
He further stated that the decline in the US dollar index has also contributed to the ringgit’s performance, making it one of the best-performing currencies in the region year-to-date.
"This currency movement is a testament to Malaysia’s strong economic fundamentals, supported by resilient regional and domestic prospects,” he added.
Choy emphasised that interest rate expectations remain a key driver in the financial market.
"The upcoming Jackson Hole symposium, where key discussions on interest rate trajectories are expected, will be closely monitored by investors.
"The outcomes of this event will have implications for global markets, including Malaysia,” he added.
He, however, highlighted that geopolitical uncertainties and inflation pressures, as well as China’s economic slowdown, are notable downside risks.
"Despite this, the broader trade diversions and the expansion of trade to be more broad-based provide some cushion against these headwinds,” he said.
Choy concluded that the recent corrections in the financial market, which appeared to be more valuation-driven rather than a reflection of weakening fundamentals, suggested that prospects for financial markets, including Malaysia’s, remain robust.
"The equity market and the ringgit, supported by favourable interest rate differentials and strong foreign investment, is well-positioned to continue its positive trajectory, barring any unforeseen global shocks,” he added. - Bernama
