KUALA LUMPUR: Macquarie Equities Research expects the ringgit to appreciate 15% to 20% against the US dollar by 2011 in the belief that the country will no longer need to depress the local currency.

“We forecast the ringgit/US dollar will hit 3.20 (+6% from 3Q09) by end-2010 and 3.00 (+14%) by end-2011. Currencies usually overshoot, so we could easily hit 20%. The two key cross-rates to watch are ringgit/US dollar and ringgit/yuan,” the foreign research outfit said in a report released last Monday.

This forecast is certainly very bullish on the ringgit, being much higher than the end-2010 targets of three local research houses contacted by The Edge Financial Daily of 3.25, 3.40 and 3.37.

It is also more bullish than another foreign research house JP Morgan that released a similar country strategy report a week earlier that forecasts 3.30 for the ringgit against the dollar by end-2010.

An economist at a local research house ventured that there was no need to worry about a too strong ringgit. “So long as rates are maintained at 2%, nothing will change. There might be some outflows,” he said.

In upgrading Malaysia from “take profit” to “neutral,” Macquarie said the most important positive development was the ringgit, the appreciation of which could be countered by expensive valuations, negative earnings momentum, a potential unwinding of the US dollar carry trade, and the listing of Maxis Bhd, which would be a big drain on liquidity.

Macquarie said since Malaysia floated the ringgit in mid-2005, the currency had held approximate parity against the Chinese yuan.

“However, when the financial crisis hit, the central bank took out additional insurance by depreciating the ringgit against the yuan. We believe that the recent appreciation of the ringgit reflects the central bank’s view that such insurance is no longer needed and it is now allowing the ringgit to appreciate,” it said.

The ringgit managed to rebound last Friday from early session weakness against the dollar to end 0.18% higher to 3.376 from 3.3822 the previous day. At this level, the ringgit is 2.64% stronger year-to-date and 9.4% stronger than the year’s low of 3.728.

Macquarie expects Bank Negara Malaysia to raise its policy rate from 2% to 2.25% only in 4Q10 and by another 25 basis points per quarter thereafter.

Pursuant to a stronger ringgit, the research house expects importers to gain the most, naming Astro All Asia Networks plc and automotive companies, which import from Europe and the US.

It said exporters such as plantations would effectively suffer a price cut and those with a high proportion of overseas business would see lower translated earnings such as Parkson Holdings Bhd (more than 90% of Ebitda), MISC Bhd (more than 90%), YTL Power International Bhd (75%), and KNM Group Bhd (60%).

Macquarie said other sectors like banks, telcos, utilities and gaming would be unaffected except for their foreign operations, and to the extent that they may have foreign debt, where there would be translation gains on the debt.


This article appeared in The Edge Financial Daily, November 16, 2009.