Weak ringgit to impact 5 sectors

Clearer picture: A money changer worker counts US dollar notes for a customer in Kuala Lumpur. CIMB Research expects the ringgit

PETALING JAYA: Exporters are back on investors’ radars, following the recent steep decline in the value of the ringgit against the greenback after the United States presidential election last week.

However, there is no rush yet to pick up bargain stocks on Bursa Malaysia.

The FBM KLCI took another big hit yesterday after falling by more than 1% for the second consecutive day amid heavy foreign sell-off.

“Fundamentally, we think markets may be overreacting to the ‘Trump risk’ in the near term, as speculative positioning takes hold,” said CIMB Research in a note to clients

On the volatility of the ringgit, it expects the trend to remain until there is greater clarity on the new US administration’s economic and trade policies.

The ringgit strengthened marginally yesterday to 4.33 against the US dollar.

CIMB Research said Heveaboard Bhd, Top Glove Corp Bhd and Evergreen Fibreboard Bhd are among the companies that would gain the most from the weak ringgit in terms of earnings.

“Share prices of YTL Power International Bhd, Genting Plantations Bhd and Inari Amertron Bhd fell 1%-3% last Friday despite being beneficiaries of a weak ringgit. We have ‘add’ calls on these stocks and the selldown could present buying opportunities for investors,” it added.

The banking sector was also among the beneficiaries of the weaker ringgit on the back of overseas operations, CIMB Research said.

Among the banks that are set to benefit are Malayan Banking Bhd, RHB Bank Bhd, Hong Leong Bank Bhd and Public Bank Bhd.

On the other hand, CIMB Research reckoned that companies that have exposure to the automotive and airline industries, namely, Tan Chong Motor Holdings Bhd, Bermaz Auto Bhd, UMW Holdings Bhd, AirAsia Bhd and AirAsia X Bhd, would be negatively impacted from the stronger US dollar and yen.

“AirAsia will be impacted by the weaker ringgit, although this is buffered to some extent by the low oil prices. About 60%-70% of AirAsia’s costs are US dollar-denominated,” it added.

On the contrary, although many research houses are bullish on the export counters to benefit from the weak ringgit, Hong Leong Investment Bank (HLIB) Research said that the sector is vulnerable from president-elect Trump’s anti-trade views.

“While the market may continue to react to the strong US dollar, we caution that export stocks may still be affected by Trump’s anti-trade sentiment.

“The technology sector is more vulnerable to any trade policy change compared to resource-based sectors,” it said.

HLIB Research said the strong US dollar would be positive for sectors such as rubber product manufacturers, the gaming industry as well as technology companies.

It is negative for sectors such as automotive, aviation, telecommunications, consumer and power.

While the cheaper ringgit does not necessarily translate to higher exports for Malaysian products, companies such as rubber glove makers, semiconductors and furniture-related companies are expected to benefit from the weaker ringgit, according to analysts.

“Naturally, beneficiaries of the strong US dollar are exporters and companies with significant US-dollar assets,” said UOB KayHian in a report yesterday.

The research house prefers the electric and electronic manufacturers such as Inari, VS Industry Bhd and EG Industries Bhd on the back of revenue growth and margin improvement as compared to exporters.

“We are less enthusiastic on the loftily-valued rubber glove manufacturers, as the supply-demand dynamics for nitrile glove remain unfavourable.

“Hence, continuing downward pressure on the US dollar pricing of nitrile gloves could mostly offset the positive US dollar effect,” it said.

UOB KayHian reckoned that the stronger ringgit would not have a huge impact on exporters compared to in 2015.

“Since a strong US dollar is now a consensus view (unlike in 2015), buyers have actively squeezed down the US dollar pricing on Malaysian exporters, which reduces the quantum of the exporters’ windfall margins and hence the exporters’ ability to positively surprise on earnings,” it said.