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KUALA LUMPUR, 18 May 2017:
The ringgit has been the best-performing currency in Asia, ex-Japan, so far in the second quarter – gaining 2.5% against the US dollar, said Standard Chartered Bank Malaysia (StanChart).
“The supportive factors that have been in place for some time now (are the) exceptionally attractive valuations, underweight foreign investor positioning and improving external balances,” it said in a note today.
The bank said key hurdle that curbed interest for the ringgit was weak sentiment towards the currency, which now seemed to be improving.
It said foreign investors have been net buyers of Malaysian equities for four straight months, with net inflows of US$2.2 billion year-to-date.
“Perhaps, more importantly for the ringgit, foreign investors also turned net buyers of Malaysian debt in April.
“We think this improved sentiment and flow picture has been as much a result of domestic factors (allowing foreign investors to hedge up to 100 per cent of ringgit exposure without documentary evidence) as of global factors (continued inflows to emerging markets leading to stretched valuations elsewhere).”
The ringgit, however, was traded easier at 4.3250/3300 against the US dollar in the early trade today compared with 4.3210/3250 recorded at yesterday’s close.
Standard Chartered said there was significant room for the ringgit to catch up for further gains given the scale of portfolio outflows in the past four years.
“While a stronger ringgit might be seen as a signal of confidence in the domestic economy, we think the central bank may aim to rebuild its foreign exchange reserves more determinedly at some point,” the bank added.
Malaysia’s foreign exchange reserves were currently at its lowest in 11 years, after accounting for the central bank’s position in the forward book of net short US$17.7 billion, as of end-March 2017.
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