Affin Hwang AM lists key factors that will drive capital market in short term

KUALA LUMPUR: The ringgit’s renewed strength, impending general election and divergence between macro improvement and earnings delivery will influence the Malaysian capital market in the short term, according to Affin Hwang Asset Management Bhd (Affin Hwang AM), which expects the ringgit to strengthen this year and stay at the RM3.80-RM3.90 level against the US dollar.
Affin Hwang AM managing director Teng Chee Wai (pix) said the correlation between the ringgit and the equity and bond markets has been strong. At periods when the ringgit is strengthening, he said, foreign investors have been keen to invest and the ringgit strength is helping flows of funds into the stock market.
“The ringgit has been punished too much since 2015. If you look at the decline of the ringgit against all other commodity currencies, the ringgit has been punished for whatever reason. Other currencies like the Brazilian real and Russian ruble have also (experienced) sell-offs during periods of time (but) they all recovered prior to this, but the ringgit has not recovered,” Teng told a press conference after presenting the market outlook and company briefing here today.
“Looking at the fundamentals of Malaysia, there’s is no reason why the ringgit should be at those levels of RM4.50, RM4.40. The fair value is RM3.80-RM3.90. Today, thank God, we’re moving back to that (fair value). We think the ringgit will continue to appreciate to the RM3.80-RM3.90 level this year.”
Over time, Teng said, if Malaysia’s fundamentals prevail, the ringgit can continue to strengthen beyond the RM3.80 level.
If the country’s reserves continue to rise, it is supportive of the ringgit, Teng said, adding that another factor that influence the ringgit is the US dollar environment.
“Today, the US dollar is not the most preferred currency globally. Investors are abandoning the US dollar and are keeping euro, yen ... emerging market currencies are preferred at the moment.
“If that continues to prevail, the ringgit has a chance to break the RM3.80,” said Teng.
He added that a gradual strengthening of the ringgit will be healthier than a sudden rise in the currency, as it allows exporters to adjust towards the level of ringgit.
Meanwhile, Teng said the market is trading with anticipation of an election and with expectations that there will be a feel good factor created via the marketplace.
He said one of the key criticisms of the market in Malaysia is that the earnings figures remain relatively low despite the country’s economic growth, adding that earnings growth expectation is only about 5%-7%.
“One of the issues for Malaysia from the foreign investors’ perspective is they can’t find the great story about the earnings momentum in Malaysia and that’s what holding back a lot more fund flows coming into Malaysia,” said Teng.
Affin Hwang AM remains positive on Asia as a weaker US dollar environment and higher commodity prices across the board provide the uplift for Asian equity markets. The earnings revision cycle out of Asia continue to point towards strength, it says.