KUALA LUMPUR, Oct 31 ― A clearer policy direction from the 2019 Budget is likely to lift the ringgit to trade higher at between the 4.00 and 4.10 levels versus the US dollar, and Bursa Malaysia to 1,845 points by year-end, says Affin Hwang Capital Research.
Chief Economist and Head of Research Alan Tan Chew Leong believed detailed plans and strategies would be laid out in the upcoming budget and provide further clarification on Malaysia’s policies on the fiscal front.
“The ringgit might remain in the red for the short term, but along with Bank Negara Malaysia’s foreign exchange measure that requires foreign exporters to convert their export proceeds back to the ringgit from the US dollar, coupled with our strong fundamentals such as substantial current account surplus and healthy international reserves level, we believe the ringgit is likely to appreciate to the 4.10 level versus the greenback by year-end from the current level of about 4.18,” he said.
Tan was speaking at a media briefing on the 2019 Budget and Economic Outlook in The Year Ahead here today.
He said with the possible depreciation of the greenback towards the middle of 2019 due to expectations of more gradual US Federal Reserve interest-rate increases moving forward, the ringgit is likely to further improve to 3.80-3.90 against the US dollar by the second half of 2019.
Meanwhile, on the benchmark FTSE Bursa Malaysia KLCI’s (FBM KLCI) performance, Equity Research Senior Associate Director Loong Chee Wei said the higher target of 1,845 points versus today’s closing of 1,709.27 was based on the market’s FY18 price-earnings ratio of 18.4 times.
“Expectations of more policy clarity following the announcement of 2019 Budget, no further escalating trade war between the US and China, as well as our forecast of a five per cent growth of gross domestic product (GDP) this year that would eventually support corporate annual growth, would also contribute to a higher CI by year-end,” he said.
Asked if the bullish equity market outlook and the ringgit’s performance would encourage more fund flow into the local stock market, Tan said clarity from US President Donald Trump and Chinese President Xi Jin Ping’s trade talks next month, coupled with clearer policy direction from the 2019 Budget, would flavour Malaysia’s equity and bond markets towards the end of the fourth quarter of the year (Q4 2018).
“If the US dollar does not continue strengthening and in line with what we anticipate, we may see some US investors shifting their funds from the US to the Asian region, especially into Malaysia where our economic fundamentals are stronger compared to other countries like Indonesia which are suffering from both current account and budget deficits.
“So we may see foreign fund inflow into the markets by Q4 2018,” he said.
Despite the positive outlook for the market, Tan expected the government would likely incur a larger revised budget deficit of 3.6 to 3.8 per cent of GDP estimated for 2018, and a deficit of 3.3 to 3.5 per cent of GDP projected for 2019 from the targeted 2.8 per cent for this year.
“This takes into account the unpaid tax refund and revenue forgone from the abolishment of the goods and services tax,” he said.
However, Tan said the research house believed with detailed plans and strategies to be laid out in the upcoming budget to contain and consolidate the deficits going forward, the country’s sovereign risk would likely avoid possible downgrades by international rating agencies like Moody’s Investors Service, S&P Global Ratings and Fitch Ratings. ― Bernama
Source: The Malay Mail Online