Ringgit, stocks to remain weak at least for next few days

PETALING JAYA: The ringgit and the local stock market are expected to continue their bout of weakness on the back of developments in Turkey and the strengthening US dollar.
The ringgit closed lower at RM4.0925 to the dollar yesterday after three consecutive days of staying within the 4.07 range, while the FBM KLCI saw a 22.41-point or 1.24% drop to 1,783.34 points, with all other indices on the bourse also declining. This comes against the backdrop of heavy selling of emerging market currencies and Asian stocks.
Socio-Economic Research Centre executive director Lee Heng Guie told SunBiz that the ringgit is expected to weaken in the near term along with regional currencies due to the developments in Turkey as the US doubled tariffs on Turkish steel and aluminium, as well as the sanctions on Iran from where half of Turkey's oil imports come.
Noting that the ringgit has weakened following the 14th general election in view of the transition to a new administration, Lee maintained his year-end forecast at RM4.10 to the dollar on the back of external and domestic factors.
Meanwhile, FXTM global head of currency strategy and market research Jameel Ahmad said global markets are likely to remain dictated by external pressures especially from the Turkish lira crisis, and the ringgit could weaken to RM4.10.
"The threat for the ringgit will be that investors continue to remain 'risk off' during this period, with a strict reduction in trader appetite towards emerging market assets. This means that emerging market currencies, like the ringgit, will be off the table for investors and we can expect for the ringgit to take guidance from the lira crisis.
"If the lira continues to worry global investors, the ringgit, like other emerging market currencies, will suffer from the risk-off environment.
"For as long as the Turkish lira crisis continues to limit risk appetite, RM4.10 could be in sight over upcoming trading sessions. The ringgit is at risk to weaken further, should the external factors such as trade war and lira crisis continue to worry global investors.The ringgit is at risk to weaken further for as long as risk off prevails," he added.
As for the local bourse, Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said the drop has much to do with the developments in Turkey and the weakened ringgit.
Terming yesterday's 22.41-point drop as significant, Pong said the negative market sentiments were equally severe with 647 stocks down as opposed to 216 gains. "That tells you how much the market has taken the beating in respect to this."
Stocks that took heavy hits were IHH Healthcare Bhd and Malaysia Airports Holdings Bhd, both of which have operations in Turkey.
IHH, which was the most active counter of the day, fell 5.22% to RM5.45, with 58.60 million shares done, and MAHB, which was the biggest loser of the day, fell 53 sen or 5.38% to M9.33 with 12 million shares traded.
"Two stocks, MAHB, and IHH, which have operations in Turkey … they are going to see substantial loss in investment if Turkey's economy goes into a spin. They will be in the front point of whatever that is coming," Pong said.
Meanwhile, stocks such as Tenaga Nasional, consumer, oil stocks, which generally have their raw materials priced in US dollars could see some impact on their profit, also declined.
"These are companies that generally price their products in US Dollars.The weakened ringgit is weighing on some stocks and their cost such as raw material and fuel cost which are essentially priced in US dollars will weigh on their profitability," Pong explained.
"I don't think it will continue but perhaps at least for a few days it would. The tendency is for the market to brush this off. This doesn't have a direct bearing on Malaysia, I think it is showing some impact with the ringgit weakening," he said when asked if this would continue.

He said the ringgit is at its fair value at RM4.09 and can potentially weaken to RM4.20 based on experience.
The selldown in the stock markets cuts short a two-week inflow run, with overseas funds mopping up RM458.2 million net of local equities, higher than the RM348.9 million bought in the previous week.