KUALA LUMPUR: The ringgit is likely to strengthen moderately against the US dollar in the second half (H2) of this year, supported by resilient oil prices, stability in China’s yuan, eventual US dollar softness, a global economic recovery as well as a move to an endemic scenario as vaccination improves in the country.
Malayan Banking Bhd (Maybank) head of forex research Saktiandi Supaat projects the local currency to strengthen against the greenback from RM4.18 in the fourth quarter of last year to RM4.10 at end-2022.
“We look for the US dollar against the ringgit to trade largely range-bound over the fourth quarter of 2021 to the second quarter of 2022, before potentially zig-zagging lower on net over time.
“The pandemic trajectory looks to be on a broad downtrend after peaking in end-August and macro activity could recover more sustainably as curbs ease.
“Our model estimates suggest that the ringgit performance going forward would depend, to a large extent, on key factors such as recovery in oil prices, continued stabilisation in the political environment and fiscal dynamics and sustained positive yuan narrative,” he said during the Maybank IBG 2022 Asean Macro and Malaysia Outlook webinar yesterday.
However, Saktiandi warned that uncertainties may emerge from Covid-19-related risks as well as domestic-related factors that may add to the volatility and limit ringgit strength against the greenback.
Malayan Banking Bhd (Maybank) head of forex research Saktiandi Supaat: “Our model estimates suggest that the ringgit performance going forward would depend, to a large extent, on key factors such as recovery in oil prices, continued stabilisation in the political environment and fiscal dynamics and sustained positive yuan narrative.t
“Beyond Covid-driven global demand and commodity price volatility, some uncertainty arises domestically from concerns about the upcoming general election (GE) happening as early as the second half of this year when a cooperation pact signed between the government and the opposition expires.
“If that scenario materialises, it may induce some ringgit volatility from mid-2022 to 2023,” he cautioned. The 15th GE has to be held before July 2023.
Meanwhile, Maybank Investment Bank Bhd (Maybank IB) has maintained the country’s gross domestic product (GDP) growth target at 6% for this year despite the damage caused by the recent floods.
Maybank IB chief economist Suhaimi Ilias believes that the floods would not cause prolonged disruptions in terms of supply shortage.
“I think the flooding on the domestic front certainly looks severe but the message we get from the industry is that it is manageable.
“There is no indication that it is going to be a major disruption to manufacturing activities, even for the plantation industries also,” he said.
Suhaimi said that according to the insurance industry’s estimate, claims related to flood damages stood at about RM3bil.
Using figures based on government assistance, he said damages, especially to households which are not insured, is around RM1.5bil.
“Over the longer term, at least it (the impact) should be neutralised. In fact, it could be more positive (moving forward),” he added.
Meanwhile, Maybank Investment Banking Group regional head of equity research Anand Pathmakanthan forecasts FBM KLCI earnings to contract again this year after a rebound last year.
“The contraction in earnings is mainly due to the one-off Cukai Makmur or prosperity tax announced under Budget 2022 that will significantly impact corporate earnings this year.
“For some sectors like gloves, petrochemicals and plantations, we do see earnings contraction due to the pressure on average selling prices for their products,” he noted.
However, Maybank IB Research is keeping an “overweight” recommendation on sectors like technology, mid-cap banks, large-cap oil and gas, renewables, automotive and hospitals.