Breaking through the 4.50 barrier, the Ringgit became the best emerging currency of the week.

南洋商报 NYSP wrote a column · Aug 2, 2024 21:12

The rising trend of the ringgit is unstoppable, with another surge of over 1.7% today, breaking through the 4.50 level. The entire week saw a rise of 3.6%!

As of 5 p.m., the exchange rate of the ringgit was 4.4908 to the US dollar, with a daily increase of 1.72%. This is another important level that the ringgit has surpassed within 3 days after breaking through the 4.60 level on Wednesday, July 31.

Looking at the entire week, the exchange rate of the ringgit has increased by 3.59%, making it the best-performing emerging market currency this week.

The outlook for Malaysia's economic growth is optimistic, coupled with continuous inflow of foreign funds, which has led to a 10-day continuous increase in the ringgit, the longest streak in 14 years.

According to Bloomberg, after three years of decline, the performance of the ringgit this year has been better than other Asian currencies, especially after the government introduced policies to promote foreign investment and reduced subsidies to narrow the budget deficit.

With the support of these policies, the Malaysian stock market has regained the interest of global funds. These funds have bought $0.112 billion (approximately 0.508 billion ringgit) of Malaysian stocks so far this year.

At the same time, Malaysia's economic recovery is also accelerating. The improvement in export conditions has provided support for economic growth. In addition, the statistics bureau's earlier forecast for the second quarter's economic growth rate reached 5.8%, exceeding market expectations.

According to the news agency Bernama, Second Finance Minister Datuk Seri Amir Hamzah believes that the forecast of 4% to 5% economic growth in our country this year can be achieved, and may even reach a higher level, leading to further strengthening of the Ringgit's trend.

According to an analysis by Maybank on Thursday, the Ringgit's excellent performance is expected to continue due to bold fiscal reforms, strong growth, and increased interest from foreign investors.

The Ringgit against the Singapore Dollar also rose sharply today, up 1.17% to 1 dollar to 3.3740 Ringgit. The Ringgit also strengthened against other major currencies.

Breaking through the 4.50 barrier, the Ringgit became the best emerging currency of the week.

The strong Ringgit has had a side effect of causing palm oil prices to fall for two consecutive weeks.

Due to the strengthening of the Ringgit exchange rate, the attractiveness of palm oil to overseas buyers has decreased, causing palm oil prices to continue to decline for the second consecutive week.

Shatia Waka, Senior Analyst at Fast Markets, said that although palm oil futures rose on Friday, they still fell by 1% for the entire week.

"This is mainly due to the strengthening of the Ringgit exchange rate, which has dampened market sentiment and may limit Malaysia's palm oil exports this month."

He continued, "As August to October is the peak period for palm oil production, Malaysian stocks may further increase."

Malaysia's economic prospects are surrounded by optimism, coupled with continued inflow of foreign capital, leading to a 10-day consecutive increase in the exchange rate of the Ringgit, the longest upward record in 14 years.

The appreciation of the Ringgit is a double-edged sword, benefiting imports but impacting exports.

Recently, the Ringgit has gradually strengthened against the US dollar, but Malaysian investment banks believe that this will have a mixed impact on Malaysian companies' profitability. While imports can benefit, exports will be significantly affected.

Malaysian investment bank analysts pointed out that the strengthening of the Ringgit will have a mixed impact on the profitability of domestic companies, with importers being the main beneficiaries, but exports will be significantly affected. It is worth noting that the country's total foreign trade volume in 2023 is equivalent to 132% of its overall Gross Domestic Product (GDP).

"Although the Ringgit has strengthened by 3.2% against the US dollar on a monthly basis and by 4.7% since April 23, reaching a level of 4.56 Ringgit, our economists believe that the previously set year-end target of 4.63 Ringgit is still reasonable due to the current geopolitical uncertainty and the upcoming US presidential election."

He quoted his economists' forecast, pointing out that, under the influence of the Federal Reserve's monetary policy, the Ringgit's exchange rate against the US dollar could reach a high of 4.50 Ringgit by the end of the year, or could drop to a low of 4.80 Ringgit.

"Considering that the Federal Reserve may only cut interest rates once this year and based on the current upward momentum of the Ringgit, our economists believe that the Ringgit may even rise to the level of 4.50 Ringgit against the US dollar."

The analyst pointed out that the appreciation of the ringgit is fundamentally unfavorable to exporters, including technology, oil and gas, and specific manufacturers.

He said Yan Li Mei Chong $INARI (0166.MY)$, Tengda Technology $PENTA (7160.MY)$, Witt Institution $VITROX (0097.MY)$, Dongyi Electronics $GTRONIC (7022.MY)$, and Mathe Pacific $MPI (3867.MY)$ and other major businesses with revenue settled in US dollars, although they have a certain buffer from the local supply of raw materials, but profits are expected to decrease by 5% to 10%.

Top Glove may be a big loser.

According to analysts, a stronger ringgit is also bad news for glove manufacturers whose revenue is settled in US dollars, which accounts for more than 90% of their revenue.

However, the impact on glove stocks will vary depending on the level of hedging by each company.

According to analysts' estimates, for every 10% appreciation of the ringgit against the US dollar, Hartalega's core profits will decrease by 0.5% to 1%, while the high-yield woven products industry will decrease by 1.3% to 1.5%, but the decline for Top Glove will be 11% to 13%. $HARTA (5168.MY)$In addition, according to the analyst, sectors that can benefit from a stronger ringgit include automobiles, transportation, consumer stocks, media, and healthcare, as import costs for raw materials and fuel in these sectors will be reduced. $KOSSAN (7153.MY)$The decline for Top Glove will be 11% to 13%. $TOPGLOV (7113.MY)$Top Glove relies mainly on natural hedging and does not have many forward foreign exchange contracts.

In addition, according to the analyst, sectors that can benefit from a stronger ringgit include automobiles, transportation, consumer stocks, media, and healthcare, as import costs for raw materials and fuel in these sectors will be reduced.

As for the financial services, construction, agriculture, electrical utilities, industries, ports, and real estate investment trusts (REITs) and other sectors, the analyst believes that the appreciation of the Ringgit does not have a significant impact on these related areas.

Panic sentiment prevails, triggering a 'small stock disaster' in Asian stocks.

Nevertheless, accompanied by poor US economic data, technology stocks face selling pressure, arbitrage sentiment emerges, dragging Asian stock markets into a sea of red.

Among them, the largest decline is in the Nikkei Index. $Nikkei 225 (.N225.JP)$Taiwan Weighted Index $FTSE Taiwan50 Index (.FTTW50.TW)$and Seoul Index $Korea Composite Index (.KOSPI.KR)$, while the Malaysian stock market is also in a situation where thousand stocks are falling together.

Today's leading heavyweights include Top Glove. $PMETAL (8869.MY)$And Yang Zhongli Electrical Utilities $YTLPOWR (6742.MY)$。

By the 5 p.m. market close, the FTSE Bursa Malaysia KLCI Index $FTSE Bursa Malaysia KLCI Index (.KLSE.MY)$closed at 1611.05 points, down 13.20 points or 0.81%.

The total volume for the day was 5.2 billion, 46.47 million, 2900 shares, with a total value of 3.9 billion, 90.81 million, 2637 ringgit.

The FTSE Bursa Malaysia All Share Index closed at 12303.50 points, down 207.37 points.

156 stocks rose, 1316 stocks fell, 606 stocks remained unchanged, and 473 stocks had no trading activity.

However, market participants believe that today's sharp decline is just an immediate response driven by panic sentiment, with no imminent danger signals in the overall macroeconomic situation, making the likelihood of a major stock market disaster extremely low.

However, there are still many uncertainties in the global environment, and the "mini stock crash" may not rebound quickly in the current environment of lingering panic.

With weak economic data in the United States causing concerns about a forthcoming recession, overnight the three major U.S. stock indexes all fell sharply, with the Nasdaq index plunging 2.30%, leading to a comprehensive downturn in Asian stock markets today.

The MSCI Asia Pacific index fell by 3% at one point, marking the largest decline since June 2022.

The Malaysian stock market closed today at 1611.05 points, down by 0.81%. Although the overall decline is relatively mild, the "thousands of stocks falling together" still leaves investors in despair.

Despite this, BBBwealth analyst Xiang Qingfa calmly pointed out in an interview with Nanyang Siang Pau that the simultaneous setbacks in Asian stocks this time may be mainly due to the decline in U.S. stocks overnight, hawkish behavior by the Bank of Japan, and poor U.S. economic data, triggering market concerns about the possibility of an economic downturn.

Panic Spreads

He pointed out that the significant fluctuations in U.S. stocks these days, coupled with the mixed performance of tech giants releasing their financial reports successively, have raised the panic index.

Additionally, the recent PMI data and soft labor market in the United States have also raised concerns about a possible recession in the market.

In addition, the Bank of Japan unexpectedly raised interest rates twice this year and hinted that it may raise rates again in October. Such hawkish remarks have dealt a heavy blow to the Japanese stock market.

He believes that at this stage, we can only wait for panic to dissipate and then hope for a new bullish catalyst to drive the next trend.

Profit taking.

Xu Kaisheng, a research analyst at iFAST, also believes that there are no danger signals in the current situation, so this collective decline will not be the start of a major stock market crash.

If we look at the declining trend in the stock markets of Japan, Taiwan, and the US, he believes that these markets have seen significant gains in the past year, and the current decline is partly due to profit taking.

But if we talk about a rebound, it may not be too fast, because the market still needs to wait and see, such as the expected interest rate cut by the Federal Reserve in September, whether the financial performance of US companies can meet market expectations, and the US presidential election, which has a lot of uncertainty.

The outlook for emerging markets remains promising.

In terms of investment strategy, Hong Qingfa believes that in the long term, he is still bullish on the growth potential of the Malaysian, Japanese, and Indian stock markets.

He continued that in terms of US stocks, the current valuation is actually very high. Although there is still potential for growth, if there is a correction, the magnitude will also be large.

Next, emerging markets are believed to be the focus of the world's attention, such as Malaysia and India, which may see an influx of funds. In fact, some large funds have already started deploying since the beginning of the year.

AI takes time to deliver.

In addition, the stock prices of tech giants have plummeted, with market noise persisting, and there seems to be doubts about the prospects of AI and chip demand.

Xu Kaisheng believes that investors can take advantage of this opportunity to deploy, because the prospects for AI are still promising, but the market's expectations are currently high.

The current situation is that some companies related to the digital economy have been questioned by investors for investing heavily in AI, but have not seen results and benefits.

AI will indeed bring about structural changes to companies, but this requires time to brew.

Next, the performance of US stocks will be closely watched, whether it will continue to plummet or be favored by investors to buy low.
$Dow Jones Industrial Average (.DJI.US)$ $Nasdaq Composite Index (.IXIC.US)$ $S&P 500 Index (.SPX.US)$

Source of information: Nanyang Siang Pau

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