Ringgit rallies for second day as Anwar takes Malaysia’s helm

Against the Singapore dollar, the ringgit strengthened 0.6 per cent to 3.2515, adding to Thursday’s 1.2 per cent gain. PHOTO: ST FILE

KUALA LUMPUR - The ringgit continued to rally on Friday, making the currency the best performer in the region for a second day, following the appointment of Datuk Seri Anwar Ibrahim as Malaysia’s new prime minister.

The ringgit rose by as much as 0.9 per cent against the US dollar to 4.4565, and was trading up 0.3 per cent at 4.4815 at 5.55pm. The currency had surged by 1.8 per cent on Thursday after Mr Anwar’s appointment, the largest single-day gain since March 2016.

Against the Singapore dollar, the ringgit strengthened 0.45 per cent to 3.2570, adding to Thursday’s 1.2 per cent gain.

Meanwhile, the stock benchmark index closed down 1 per cent on profit-taking on Friday, after the market added close to US$19 billion (S$26 billion) in value – the largest in a single day since March 2020 – on Thursday.

Mr Anwar’s appointment removes a key uncertainty in the market and snuffed out concerns of potentially strong influence by the conservative Parti Islam SeMalaysia, known as PAS, the biggest party in the rival Perikatan Nasional bloc.

Still, analysts said the political risk premium on Malaysian equities remained given that the “unity government” model is uncharted territory and Mr Anwar still has to test lawmakers’ support for his leadership with a confidence vote on Dec 19.

“Until the country attains reasonable political stability, the KLCI index would likely be commanding ‘sub-optimal’ valuation,” Mr Vincent Khoo, head of research at UOB Kay Hian, wrote in a note.

Investors will also continue to watch the announcement of the Cabinet line-up and the tabling of a revised Budget.

Here is what analysts are saying:

Ms Belinda Boa, chief investment officer of emerging markets equities at BlackRock

Malaysia’s economy is doing well, in our view – balancing political challenges with integration opportunities into tech-related supply chains. Malaysia is coming up as a scalable alternative to China and, in some cases, Taiwan. Additionally, higher oil and commodity prices continue to have a positive impact. Inflation may be understated, liquidity remains a hurdle, but the market looks relatively attractive at the margin.

Mr Vincent Khoo, head of research at UOB Kay Hian

As the emergence of a unity government has snuffed out fears of sin sectors being affected by adverse regulation, investors will refocus on the promising growth outlook and depressed valuations of the gaming and brewery stocks. We are again overweight on the gaming and brewery stocks.

Mr Joshua Ng, analyst at Kenanga Research

After the initial euphoria, we believe the market will assess the effectiveness of the “unity” government, which is unprecedented in Malaysia.

We expect the continuation of prevailing policy inclinations including pro-business, protectionism for local industries, business-as-usual for government-linked companies, strong fiscal support to the economy with cash handouts, fuel and food subsidies, and pump-priming.

Mr Alexander Chia, analyst at RHB

We expect the relief rally to be extended as equities play catch-up to build on the recent tentative shift in investor sentiment on the back of rising hopes that the pace of monetary tightening will begin to ease and as the market looks ahead to a more pragmatic approach by China’s government to contain Covid-19.

In the short term, however, we caution investors not to get too carried away, especially after the initial euphoria. The new unity government needs to prove its ability to work together as a team, something unimaginable just a week ago.

Another spike in markets should invite some short-term profit taking but further out, investors ought to refocus on fundamentals with a preference for large-cap value stocks.

Ms Ivy Ng, head of equity research at CGS-CIMB Securities

Our picks following the appointment of the new PM are consumers, banks, gaming and brewers. Construction, telco, utilities and property sectors could also do well in a more stable political environment.

The market will be closely watching the announcement of the Cabinet line-up, which we estimate could take seven to 10 days, first sitting in Parliament on Dec 19, tabling of provisional and full budget 2023, among other things.

Dr Sailesh K. Jha, group chief economist and head of market research at RHB

In foreign exchange, the move down in USD/MYR below 4.50 yesterday was massive and we would be cautious in believing that these prints below 4.50 are sustainable. We believe that USD/MYR could trade back up to around 4.60 by year end. BLOOMBERG

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