A better year in store for local currency

PETALING JAYA: A firmer ringgit is expected in 2024, with the local currency forecast to strengthen to RM4.40 per US dollar by the end of next year.

In a recent report, Maybank IB Research said the ringgit is projected to appreciate by 6.8% next year, up from RM4.70 per US dollar estimated at the end of 2023.

The ringgit is likely to benefit from the expected narrowing of the US-Malaysia interest rate differential, among other supporting factors.

The differential had widened to all-time-high this year amid aggressive rate hikes in the United States, triggering the outflow of funds in search of higher returns.

“We expect Bank Negara to maintain the overnight policy rate in 2024, despite the outlook of interest rate cuts in major advanced economies and regional peers.

“This is expected to be positive for the ringgit versus the US dollar,” stated Maybank IB Research.

It expects the benchmark US dollar index to weaken by 3.2% in 2024, amid a small possibility of the US entering a mild recession.

The research house also said the ringgit would benefit from the execution of plans under macroeconomic blueprints and fiscal discipline-cum-consolidation in Malaysia.

The blueprints refer to several policies announced earlier this year such as the National Energy Transition Roadmap, New Industrial Master Plan 2030 and the 12th Malaysia Plan mid-term review.

Within the equities under its coverage, Maybank IB Research said selected consumer stocks could see a margin uplift in the event of a firmer ringgit against the US dollar due to their US-dollar raw-material costs.

These stocks include Nestle (M) Bhd, Heineken Malaysia Bhd, Carlsberg Brewery Malaysia Bhd, Leong Hup International Bhd, Farm Fresh Bhd and Berjaya Food Bhd.

“In the media sector, the impact is also positive for Astro Malaysia Holdings Bhd as its transponder and some content costs are in US dollars.

“In the aviation sector, Capital A Bhd and AirAsia X Bhd would benefit as about 60% to 80% of their costs are in US dollars.

“As for the auto sector, the impact is muted overall except for Tan Chong Motor Holdings Bhd.

“For UMW Holdings Bhd and Sime Darby Bhd, their US-dollar exposure is naturally hedged due to their overseas businesses; for MBM Resources Bhd and Bermaz Auto Bhd, a 5% movement in the US dollar-ringgit exchange rate will have a less than 1% impact on their profit and loss.

“For Tan Chong, a 5% movement in the US dollar-ringgit rate may impact its losses by over 30%,” it said.

Commenting on the losers that would emerge as a result of a firmer ringgit, Maybank IB Research said these would include exporters such as players in the technology, glove and consumer sectors.

Oil and gas service service providers as well as upstream players would also be affected negatively.

In addition, companies with operations in the United States and those who bill in US dollars would also be impacted.

“In terms of technology and electronic manufacturing services players, the US-dollar exposure is naturally hedged for VS Industry Bhd and Aurelius Technologies Bhd as both their revenue and raw-material costs are in US dollars.

“They can also pass on any currency surplus or deficit from fluctuations of the ringgit beyond 10% under agreements with their customers.

“Meanwhile, for public-listed companies with foreign-debt exposure, a firmer ringgit will also translate into unrealised foreign exchange gains, all other things being equal,” stated Maybank IB Research.