THE Malaysian ringgit was the top-performing currency in Asia earlier this year, and while it has pulled back recently, analysts say that it could either stay firm or regain some ground in the near term.
That is set to have implications for some Singapore imports relative to others, as well as benefit certain parts of the stock market in Malaysia.
The Asian currency had gone from strength to strength earlier this year due to a rebound in Malaysia’s tourism sector and economic activity, among other factors, analysts noted.
It appreciated more than 12 per cent against the US dollar in the third quarter, to reach 4.1080 per dollar in late September.
The currency also did well against the Singapore dollar, rising 6 per cent from 3.4762 per Singdollar on Jun 28 to 3.2584 against the Singdollar on Sep 20.
The ringgit weakened recently, but has trimmed some losses. Year to date, the US dollar has still declined 3.64 per cent against the ringgit to 4.42, and the Singapore dollar has lost 5.1 per cent against the ringgit to 3.29 in the same period.
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Ringgit strength
The main factors that shored up the Malaysian currency included a rebound in exports, and efforts by the central bank to encourage government-linked companies to repatriate their overseas investment income and increase their foreign currency conversions.
According to Peter Chia, senior foreign exchange (FX) strategist at UOB, the ringgit’s strong performance “surprised” on the upside, and was due to a few other broad-based drivers as well.
“This was also thanks to Malaysia’s recovering tourism sector, and a rebound in construction and real estate activity,” he told The Business Times.
Maybank FX strategist Saktiandi Supaat noted that, in recent times, Malaysia’s political situation has appeared to be less uncertain, with the government currently holding a sizeable majority over the opposition.
“The Malaysian government’s pursuit of a reform agenda, executing projects such as the implementation of a diesel subsidy rationalisation scheme this year, and the possibility of further fiscal rationalisation may have helped lift investor sentiment,” he said.
Chia added: “We expect the yuan and hence the ringgit to weaken against the US dollar for the first three quarters of 2025 as (US president-elect Donald) Trump’s tariff plan takes shape, before rebounding in the fourth quarter of 2025.”
His forecasts for the Singdollar/ringgit pair are at 3.33 in the first quarter of 2025, 3.36 in the second quarter, 3.37 in the third, and 3.35 in the fourth. He expects the US dollar/ringgit pair to reach 4.53 in Q1 2025, 4.60 in Q2, 4.65 in Q3 and 4.55 in Q4.
Bank of Singapore’s currency strategist Sim Moh Siong added that the ringgit will not move very much more against the Singdollar. “I think the Singdollar-ringgit cross is likely to stay range-bound for now, and will not weaken immensely, considering how there’s greater focus on Malaysia’s part to stabilise the ringgit.”
CGS-CIMB, in a Dec 3 report, noted: “Following over a decade of emerging-market currency weakness, including the ringgit, we expect further local currency gains in 2025. The currency reversal is underpinned by a shift to the Federal Reserve easing, while high US debt levels could eventually be also priced in.”
Impact on electronics, food and tourism sectors in Singapore
Any appreciation in the ringgit or a firm ringgit will continue to result in imports from Malaysia staying relatively more expensive for Singapore businesses.
“Imports most likely to be affected are those in the electronics space, which amounted to US$22.2 billion in value in 2022. This is followed by fuel and machinery imports,” said Saktiandi.
However, considering how both Malaysia and Singapore are on the technology supply chain, the exchange rate between the countries may matter less, as Malaysia relies on Singapore for certain import parts, too.
Sim observed: “Where the exchange rate could matter more for Singapore could be in the area of food, as Malaysia makes up a significant portion of the total imports, and particularly of certain staples such as vegetables, eggs and chickens.”
Global data from 2022 reflects that the total amount of imports from Malaysia to Singapore came to US$53.8 billion.
The overall picture is still positive for those in Singapore or purchasing Malaysian goods, however. Despite the ringgit’s recent strength, the currency continues to be a “bang for one’s buck”, according to Sim.
“If you take a look at the wider picture beyond the ringgit’s current strength, it is still relatively weaker than the Singdollar,” he noted. “It’s therefore not clear to me that it will affect tourism numbers.”
Impact on Malaysia markets
Domestic-driven sectors should benefit from the appreciation of the local currency, said CGS-CIMB.
It is bullish on these domestically driven sectors: construction, utilities, telecoms, autos, banks, consumer discretionary, and upstream plantations.
“Ringgit appreciation has an impact on liquidity and fund flows, which in turn could move risk asset prices higher,” it said, adding that it is positive for flows into Malaysia’s stock market.
On the flip side, however, the earnings impact on gloves, technology and petrochemicals companies could be “significant” should the ringgit appreciation be sustained, said CGS-CIMB.
