The chances for the ringgit to return to a fair value of around RM4.10 versus the US dollar have increased. NSTP file pic

KUALA LUMPUR: The chances for the ringgit to return to a fair value of around RM4.10 versus the US dollar have increased.

It may happen sooner than the targeted first half of 2018, says Bank Standard Chartered.

Asia FX strategist Divya Devesh described the ringgit as the best-performing currency in Asia except Japan in the second quarter so far, having gained some 2.5 per cent.

“Ringgit-supportive factors have been in place for some time now – exceptionally attractive valuations, underweight foreign investor positioning and improving external balances.

“ The key hurdle, however, has been weak sentiment, which now seems to be improving,”she said in a report.

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).

Foreign investors have been net buyers of Malaysian equities for four straight months, with net inflows of US$ 2.2 billion year-to-date.

Foreign investors also turned net buyers of Malaysian debt in April.

“Given the scale of portfolio outflows in the past four years, there is significant room to catch up, which should support further ringgit gains.”

While a stronger ringgit might be seen as a signal of confidence in the domestic economy, Divya said Bank Negara Malaysia may aim to rebuild its foreign reserves more determinedly at some point.

Malaysia’s FX reserves are currently at their 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).

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