PETALING JAYA: The ringgit’s recent appreciation is often dismissed as a by-product of weakness in the US dollar, a view that misses the broader context, says Kenanga Research.
In a report, the research house observed that foreign inflows into the Malaysian capital market are rising, underpinned by Bank Negara’s steady policy, a sustained trade surplus and a relatively stable macroeconomic backdrop.
It said investors are not simply fleeing the United States, they are rotating into credible, reform-oriented markets, a call that reflects deeper, structural forces reshaping the global monetary order.
Revising its year-end target for the local note from 4.45 to the US dollar to 4.08, Kenanga Research said de-dollarisation, once viewed as a slow-burn process stretching over decades, is now unfolding within a two- to three-year period.
“It reflects a reconfiguration of capital flows, remapped reserve strategies, and a growing fiscal discount on US assets,” said the research outfit.
Explaining further, it said although the US dollar is not about to lose reserve status overnight, the greenback’s era of unchallenged dominance is steadily eroding, the shift being neither sudden nor dramatic, but rather quiet, persistent, and gathering pace.
Kenanga Research said: “Over the past decade, central banks have steadily diversified their reserves away from the US dollar. This picked up during President Donald Trump’s first term, spurred by geopolitical uncertainty and the weaponisation of the currency.
“By the end of last year, based on the International Monetary Fund’s currency composition of official foreign exchange reserves dataset, the US dollar’s share of global foreign exchange reserves had fallen to 57.8%, down from 66% in early 2015.”
The research house commented that the shift is deliberate, as emerging-market central banks, especially in China, Turkey, and India, have ramped up their gold purchases to record levels.
Despite the fact that surging bullion prices have inflated gold’s share in reserve portfolios in US dollar terms, even after adjusting for valuation effects, the trend is clear, it said.
Looking back at Malaysia, it said the country’s fundamentals are improving at the margin.
“In a world where US dollar hegemony is fading, the ringgit could quietly emerge as a relative winner. Exporters may grumble about currency strength, but the solution is not depreciation but to upgrade competitiveness,” added Kenanga Research.
Under the New Industrial Master Plan 2030, Malaysia aims to move up the value chain, it said, before pointing out that product sophistication will be a key catalyst in making that ascent possible.
At the same time, Kenanga Research is expecting the ringgit to hit 3.95 against the US dollar by the end of next year, with an upside if US fiscal risks stay underpriced and Malaysia keeps up reform momentum.
“Should the US Federal Reserve begin easing later this year while Bank Negara stays put, Malaysia could offer a rare combination: monetary stability and yield in a fractured global order,” it noted.
That said, the research house mentioned that the ringgit’s upside does face a new constraint in the form of capital competition from alternative assets, such as gold and bitcoin.
