Pressure on the ringgit is waning as a synchronised trade recovery lifts sentiment, while the outlook on the US dollar has turned weaker, said Maybank Kim Eng (Maybank KE).

The investment bank expects the ringgit to improve to 4.35 against the US dollar in the second quarter of this year, before strengthening further to 4.20-4.25 against the greenback in the second half of 2017.

It was traded at around 4.44 Wednesday.

According to Maybank KE senior economist Chua Hak Bin, while “divergence” had been a major theme over the last few years, early signs have emerged, pointing to a more “synchronised” recovery in 2017 as stronger US growth translates into stronger Asian exports.

“Pressure on the ringgit, as well as other Asian currencies, will ease because there is a sychronised trade recovery going on now, compared with the last few years, when the overall issue was about ‘divergence’, whereby, the US economy was improving, prompting the Federal Reserve to tighten, while other economies were still languishing, and thereby leading to a stronger US dollar, which pressured all other currencies, including the ringgit,” Chua said.

“We have seen a pick-up in trade numbers since November last year.

“This is evidence of a synchronised global trade recovery which is benefiting Asian currencies and asset prices,” he told StarBiz in an interview after the Invest Asean 2017 conference here recently.

The conference was organised by Maybank Kim Eng and Maybank Investment Bank Bhd. Chua noted that in past Fed tightening cycles, Asian currencies and asset price tended to hold up better when global recoveries were more synchronised.

Hence, he said, the outlook for the US dollar was no longer as bullish anymore.

“The greenback tends to do very well in a divergent economy, or in a crisis, but not necessarily so in other times,” he pointed out.

According to Chua, the recovery of the ringgit had lagged behind that of its peers in recent times because confidence was still somewhat weighing on sentiment.

He noted that while domestic political issues had continued to affect investor confidence, which had led to a discount of sorts to Malaysian asset prices, these issues would likely be resolved or ease away in the future.

As it stood, Chua said the outlook for Asean overall was fairly positive as China and the United States had started to increase their import intensity.

He said higher commodity prices would lift the region’s commodity exports, while electronics exports would improve on rising tech demand. “There’s a clear story that finally, after two plus years of contraction, Asean export growth will be positive in 2017... that’s important because over the last two years, net exports had been a negative contributor to growth.

“If we could reach positive territory, growth would certainly improve,” he explained.

According to Maybank KE, Malaysia’s gross domestic product (GDP) growth would accelerate to 4.4% this year and 4.5% in 2018 from the estimated 4.2% in 2016.

Singapore’s GDP growth was also expected to improve, rising to 2.5% in 2017 and 2.3% in 2018 from the projected 2% in 2016.

The group expected Indonesia’s GDP to remain stable at 5.1% this year before improving to 5.3% next year from 5.1% in 2016, while Thailand’s economy was expected to grow 4.5% in 2017 and 2018 from 3.5%.

The Philippines’ GDP growth, on the other hand, was expected to slow to 6.4% this year and 6.5% in 2018 from 6.8% in 2016.

Source:
courtesy of THE STAR

by CECILIA KOK

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