ANN/THE STRAITS TIMES – The Malaysian ringgit’s rally is luring global funds to buy more local bonds, giving a further boost to the emerging market’s top-performing currency this quarter.
Foreign investors poured MYR5.5 billion into Malaysian bonds in July, the largest monthly inflow in a year, according to data from Bank Negara Malaysia. The recent surge in the currency has pushed total returns on ringgit notes to 5.9 per cent in 2024, among the highest in emerging markets.
“Expectations of ringgit strength attracted foreign bond flows, probably on an FX (foreign exchange) unhedged basis to position for FX gains, creating a positive feedback loop,” said head of fixed-income research at Maybank Securities in Singapore Winson Phoon.
“The stars have aligned for the ringgit and local bonds.”
Investors are increasingly taking a bullish position on the ringgit in a sign of confidence in the country’s improving economic outlook.
The Malaysian currency is up 5.5 per cent against the United States (US) dollar this quarter. Increased expectations for US interest rate cuts may further attract foreign flows to the domestic bond market.
The ringgit was trading at MYR4.4745 to the US dollar, and MYR3.3750 to the Singapore currency, as at 9.31am on August 6.
Maybank sees the 10-year Malaysian government yield falling to 3.5 per cent by mid-2025, amid expectations that Bank Negara will maintain the overnight policy rate at three per cent till 2025. This is supported by waning inflation risks and solid domestic growth prospects. The 10-year benchmark note traded at about 3.75 per cent yesterday.
Investors will be on watch for the timing and extent of an eventual cut in subsidies for the nation’s most widely used petrol for further impact on consumer prices.
“We favour tactically positioning for dollar-ringgit to push below our fair value target of MYR4.30,” buoyed by an export recovery, unwinding of dollar longs and room for further foreign bonds and stocks inflows, CIMB strategists wrote in a note on August 5.
