Fall in value fails to scare off ringgit investors

 

The value of the ringgit has fallen substantially against both the greenback and the Singapore dollar this year. (File pic)

PETALING JAYA: While the value of the ringgit has slid to an all-time low against both the US and Singapore dollars, investors have mostly chosen to keep their holdings in the local currency.

Fund managers told FMT Business they have not observed any major disposal by investors of their ringgit assets.

Equity research analyst Thong Pak Leng said his clients are taking a more passive stance as they expect the demand for “safe haven” currencies such as the greenback and the Singapore dollar to ease.

Thong, who is vice-president at online trading platform Rakuten Trade, attributed this to the recent decision by the US Federal Reserve to pause its interest rate hike campaign that began in mid-2022.

At the most recent federal open market committee meeting on Nov 2, the Fed opted to maintain its overnight federal funds rate at 5.25% to 5.5%.

At its monetary policy committee meeting several hours earlier, Bank Negara Malaysia also decided to keep the overnight policy rate at 3%.

Thong said the major capital flights due to the appreciation of the US dollar had come to a head last year.

“Whatever investments people wanted to make (in the US and Singapore dollars) have been made. I think investors are just waiting for the US dollar to drop and move their money back to non-USD assets,” he said.

Since June 2022, the US Fed Reserve has raised its interest rate by 375 basis points (bps). The resulting high returns led to a clamour to buy and lend US dollars over the ringgit.

The bullish US dollar also forced the Monetary Authority of Singapore to strengthen its currency as the island-state’s highly open economy needs a strong Singapore dollar to control inflation.

The market volatility put pressure on the ringgit, forcing it down to new all-time lows against both currencies.

Last month, the ringgit weakened to 4.7958 against the US dollar and 3.5026 to the Singapore dollar, making it the second worst performing currency in Asia after the Japanese yen.

However, Thong cautioned that the outlook for the ringgit and other “safe haven” currencies remained uncertain as the outbreak of the Hamas-Israeli conflict is escalating tension in the Middle East, while crude oil prices are still high.

“The critical turning point (for ringgit outflow) is already over (but) there are some risks here. The Middle East conflict and tension may strengthen the US dollar because investors may move their money from the Middle East to US dollar (as a safety measure),” he said.

“If oil prices rise above US$100 there is a possibility that the Fed will raise interest rates (to control inflation). The US dollar will then strengthen and the ringgit will be weakened again, but these are just speculation,” he added.

The price of crude oil has dropped to US$78 a barrel after touching US$93 in September.

Areca Capital CEO Danny Wong concurred with Thong. He said that while some of his clients have diversified their currency investments, the demand for the ringgit remains stable overall.

“There are investors looking for other currencies to hedge against the already weak ringgit but there is nothing significant (like a capital flight happening). Many would think that this could be the end of the US and Singapore dollar hike and we are heading for a downtrend (now),” he said.

Wong remains optimistic about a potential rebound of the ringgit as the US interest rate hike campaign has reached its peak. - FMT