Ringgit back on investors' radar despite slump

An employee at a Change Alley money changer counting Malaysian Ringgit banknotes.
An employee at a Change Alley money changer counting Malaysian Ringgit banknotes.ST PHOTO: MARK CHEONG

KUALA LUMPUR • Asia's worst- performing currency is starting to come back into favour.

Malaysian assets are returning to the radar for global funds after they fled last November, when policymakers clamped down on trading in offshore ringgit forwards to halt a currency slide.

Neuberger Berman Group says the ringgit may be among the region's better performers in coming months, while an improving economy has convinced Nikko Asset Management to change its view of Malaysian bonds to neutral after earlier cutting holdings.

"The ringgit has a few things going for it now," said Mr Prashant Singh, Neuberger's senior portfolio manager for emerging market debt, in an interview in Singapore last week. "If you look at the overall balance of payments, with the increase in commodity prices, the current account has improved. Foreign direct investment in Malaysia has improved so that has helped."

While still expecting the ringgit to weaken along with most Asian currencies against the US dollar, analysts have boosted forecasts for three straight months. They now see it falling to 4.46 per US dollar by mid-year, a smaller decline than the earlier prediction of 4.55, according to a Bloomberg survey.

The exchange rate was at 4.4202 at 3.45pm in Kuala Lumpur yesterday. It was trading at 3.17 against the Singdollar.

The ringgit has been the worst performer among Asian currencies in the past six months, losing 4.6 per cent, as the election of US President Donald Trump in November and rising US interest rates saw investors take money out of the most liquid emerging markets.

While still expecting the ringgit to weaken along with most Asian currencies against the dollar, analysts have boosted forecasts for three straight months.

Malaysia's central bank responded to the ringgit's slump in November by clamping down on the trading of offshore non-deliverable forwards. That had the effect of stemming declines, but also dampened interest from overseas investors, as they found it harder to hedge their positions in the country's assets. Global funds cut holdings of ringgit bonds to a five-year low in March.

Starting in December, policymakers introduced a number of new measures to revive interest in the country's financial markets.

The central bank revised rules to encourage investors to hedge their currency exposure onshore, and ordered exporters to hold at least 75 per cent of export proceeds in ringgit.

Yesterday, Bank Negara said it would deepen financial markets, including revising rules to allow investors to fully hedge their currency exposure and permit all domestic players to short-sell government bonds.

"The new rule which forces exporters to convert at least 75 per cent of their export revenues into ringgit definitely helps," Neuberger's Mr Singh said.

"That has alleviated some of the outflow pressure on the balance of payments."

Sentiment is also starting to improve as the focus shifts to the nation's improving current account surplus and trade outlook.

As crude prices recover and the global economy stabilises, the outlook for the net oil exporter has brightened, and its current account surplus has widened to the most in more than two years in the last quarter of 2016.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 14, 2017, with the headline 'Ringgit back on investors' radar despite slump'. Print Edition | Subscribe