Rakuten Trade's Yee said the US Fed's likely rate cut later this year may help strengthen the ringgit to between RM4.50 and RM4.55 by the year-end.
PETALING JAYA: Investors are advised to be vigilant as the US economy remains at risk of a rough landing this year as opposed to the soft landing, according to Rakuten Trade Sdn Bhd.
Head of research Kenny Yee said the US Federal Reserve (Fed) is likely to cut its interest rate later in 2024, which will help strengthen the ringgit to between RM4.50 and RM4.55 by year-end.
“As we expect the US dollar to weaken after the rate cuts.
“We are also encouraged by the foreign direct inflows, especially from Singapore, which will strengthen our currency,” he said during the virtual media briefing on Malaysia’s second quarter market outlook yesterday.
According to Yee, apart from the Fed’s move to cut rates, the easing of the interest rates in the European Union and improved investment climate domestically will also play a role in helping the ringgit appreciate.
“Foreign funds inflows have been erratic which could mean a selected portion are looking for stability rather than go through the vagaries of Wall Street.
“Additionally, this can also be a prelude or start of certain portfolio diversification amongst the foreign funds albeit at a smaller scale,” he said.
Yee said there were more positives than negatives for the stock market.
He expects the FBM KLCI to hit 1,660 points by the end of the year helped by a 16% earnings growth and potentially reach 1,700 should foreign funds inflows rise.
Yee noted there has been an improvement in foreign shareholdings on Bursa Malaysia towards the fourth quarter of last year amid an improving political climate.
“Therefore, we are confident foreign shareholding will surpass the 20% threshold and test the 25% level as Malaysia has been shunned and under-invested by foreign investors for so long,” Yee pointed out.
For 2024, Rakuten is bullish on several sectors including construction, banking, telecommunications and semiconductor.
Yee said there have been numerous construction projects that were announced besides government infrastructure projects.
“As for the semiconductor industry, the demand for artificial intelligence will require a lot of parts, and this increased demand will ensure that production is ramped up, which will result in higher earnings for the industry,” Yee said.
On the Fed’s next move, he said it would need to make a rate cut this year or the economic system would be in turmoil, adding that Wall Street faces the risks of high valuations, high interest rates and high expectations.
“US equities are now more sensitive to data, news and narratives on a daily basis.
“There are different interpretations based on daily narratives, which could force the Fed to prolong adjustments,” he said, adding that Wall Street has been flush with liquidity due to the quantitative easing programmes of the past.
