Ringgit weakened sharply against USD, performed better with the other major currencies - Manokaran

Weekly analysis by Manokaran Mottain

CURRENCY

The performance of the Ringgit last week caught the market by surprise. The local currency unexpected weakened sharply against the US Dollar to RM4.4740 / USD1.00 (-3.1sen), a level last seen in January 2017.

Conversely, the Ringgit performed amazingly well against the other major currencies during the week. The Ringgit made sizable gains against the British Pound at RM5.2942 / GBP1.00 (+9.7sen), the Japanese Yen at RM3.2640 / JPY100 (+6.1sen), the Euro at RM4.4914 / EUR1.00 (+6.8sen) and the Singapore Dollar at RM3.2158 / SGD1.00 (+2.5sen).

Given the vastly contrasting scenario, I believe the Ringgit’s movements last week was due to portfolio rebalancing exercises undertaken by foreign funds in anticipation of further interest rate hikes by the US Federal Reserve.

In light of this, I am adjusting the Ringgit / USD trading band to between RM4.44 to RM4.50 in the coming week.     

MARKET

The local stock market performed as expected during the past week. The benchmark KLCI Index surged to an intra week high of 1,518.16 points before succumbing to profit taking to end the week at 1,504.44 points (-1.75 points or -0.1%), snapping a five-week run of gains.

Given the uncertain outlook of the market and the relatively low daily trading value each day, it is best to adopt a very cautious approach in the current market conditions. So far, the corporate results released for 3Q2022 were generally in line with expectations and had not boosted sentiments. Nevertheless, we will see more results being released in the coming one and a half weeks.   

The bond yields for both the 10-year US Treasuries (UST) and 10-year MGS yields were mixed in the past week. Yields for the 10-year UST spiked by 13 basis points to 2.97% as the US Federal Reserve reiterated that they main priority is to fight inflation and indicated that they will continue to raise interest rates until inflation falls significantly. So far, the market expects the US Federal Reserve to increase the Federal Funds Rate by another 50 basis points at its upcoming meeting in September 2022.

Meanwhile, bargain hunting activities caused the 10-year MGS yields to decline slightly by 2 basis points to 3.96%. The latest spike in the UST yields brings the yield spreads between both countries’ 10-year bonds to narrow by 15 basis points to just 99 basis points. As such, I believe that the MGS yields is likely to come under pressure in the coming weeks in the run up to the BNM Monetary Policy Committee and US Federal Open Market Committee meetings next month.

Meanwhile, the yield curve inversion between the UST 2-year and 10-year notes continues into its 6th week as the UST 2-year notes yield was unchanged during the week at 3.24%.  This caused the yield inversion to narrow to -27 basis points from -40 basis points last week. The long-term average of the yield spread for both UST is +0.92% or +92 basis points.    

ECONOMY

Prime Minister Datuk Seri Ismail Sabri Yaakob said the Federal Government has tasked the Economic Planning Unit to look into the Ministry of Health’s request to increase its budget allocation for Budget 2023. Currently the MOH has an allocation of 2.5% of the country’s Gross Domestic Product.  

Sabah Chief Minister Datuk Seri Hajiji Noor said Sabah has received around RM5.1 billion in foreign investments from January till August this year and is expected to garner a further RM2 billion soon. He added that the total will make Sabah the third biggest beneficiary of foreign investments in Malaysia.

Cushman & Wakefield has revealed that Kuala Lumpur has 58.76 million square feet (sq ft) of office space in its central business district (CBD) which far surpasses both Hong Kong (34.88 million sq ft) and Singapore (31.12 million sq ft).

The vacancy level of office space in Kuala Lumpur’s CBD as at 30 June 2022 is 28.3% and the rate is expected to increase as more office buildings are expected to be completed in the coming months – especially Merdeka 118 and The Exchange 106 which are the 2nd and 23rd tallest buildings in the world.  

The Global Business Travel Association is only expecting business travel to return to the pre-pandemic levels in mid-2026 due to inflationary pressures, supply chain disruptions and the on-going Covid-19 related lockdowns. This is around 18 months later than the association earlier predicted. The value of business travel fell to US$660 billion in 2020 from US$1.43 trillion in 2019.

Minister of Communications and Multimedia Tan Sri Annuar Musa said the Ministry through Malaysia Digital Economy Corporation (MDEC) has attracted more than RM7.2 billion in investments in the first half of 2022. The investments comprise of both domestic and foreign direct investments and is expected to create up to 10,000 job opportunities.

The digital investments were obtained from 53 renowned companies from multiple countries that include Australia, China, Japan, Singapore, Switzerland, Netherlands, United Kingdom and United States of America. – DagangNews.com       

  Manokaran Mottain has been an economist with a number of financial institutions is now managing his own firm, Rising Success Consultancy Sdn Bhd