Ringgit lackluster: Indication of foreign bond fund managers pulled their monies out - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

THE underperformance against the US Dollar (-4.0sen) and Euro (-7.4sen) indicated that foreign bond fund managers sold their MGS holdings and pulled their monies out of the country.

As such, the Ringgit at RM4.7650 is inching closer to its all-time low against the US Dollar of RM4.8850 due to the current policy gap of between 225 – 250 basis points against the US Dollar.

At RM3.4730, the Ringgit is also just off its recent all time low against the Singapore Dollar at RM3.4826.

Given the resurgence in the volatility of Ringgit against the Dollar, I am adjusting my expected USD-MYR range of between RM4.70 – RM4.80 for the coming week.

3Q GDP

Malaysia’s 3Q2023 GDP growth is expected to come in around 3.3% on a year-on-year basis which is a slight improvement over the 2.9% growth in the previous quarter.

This is in line with my expectations for the economy to grow by about 4% for the entire 2023.

The market was generally range bound over the past week as all the action was focused in the bond and currency markets.

Trading activity was relatively flattish as there were no major market catalysts announced in Budget 2024.

The benchmark KLCI Index ended a shade lower on a week-on-week basis at 1,441.04 points as local institutional funds continued their buying support throughout the week.  

The average trading value each day for the past week hovered just past the RM2.0 billion mark which was more or less in-line with its average over the past 100 days of RM2.08 billion per day. 

As such, I am maintaining my trading range for the KLCI of between 1,430 and 1,450 points in the coming week.

Bond yields in the US jumped back once again as bond fund managers start to impute the possibility of another 25 basis points hike at the upcoming US Federal Reserve’s Federal Open Market Committee meeting on 31 October – 1 November 2023.

The benchmark Federal Funds Rate currently stands at 5.25% - 5.50% but recent comments from the US Federal Reserve members still indicate that inflationary pressures are still far too strong for comfort and the economy will still need to be cooled down further to control it.

UST 10-year yields briefly surged past the 5% mark last week before settling down to end the week some 30 basis points higher at 4.91% but the impact to the local 10-year the MGS yield was rather muted as it fell by just nine (9) basis points last week to 4.12 due to strong local institutional funds buying support which soaked up the selling from foreign bond fund managers.

However, this widened the negative yield differential between the 10-year MGS and UST to 79 points which is substantial and is equivalent to 2-3 rounds of rate cuts. The wide yield differential makes the local MGS market comparatively overvalued against the US Treasuries.

To highlight the significant pace in the pickup of bond yields, the 10-year MGS (3.59%) had a 208 basis points positive spread over the 10-year US Treasuries (1.51%) at the start of 2022 as compared to the negative spread right now.

This caused the Ringgit to take a pounding over the past week as it lost ground against all of the major currencies. - DagangNews.com