KUALA LUMPUR: The ringgit remains 7% to 8% undervalued against the US dollar from a valuation perspective, relative to Maybank Investment Bank Research’s fair value estimate of 3.80.
It said on Thursday the US$-ringgit has been on a gradual yet bumpy decline (down more than 2.5%) since hitting a high of 4.20 (Nov 28).
“A slightly more favourable external environment could potentially support the case for further gains ahead,” it said.
Maybank Research pointed out in particular, an external environment of (1) pause in Fed rate hike; (2) global growth “neither hot nor cold” (global growth momentum slowing but not tanking); (3) global inflation not at risk of overshooting most central bank’s medium-term objectives (i.e. benign inflation) could suggests a return to “goldilocks” play and this could support higher-yielder FX including the ringgit.
In addition, supported oil and palm oil prices could further lend support to the ringgit.
“Elsewhere ringgit and ringgit-denominated assets have somewhat been under-invested since Malaysia’s last General Election in May 2018, with foreign holdings of Malaysian debt fallen to more than two-year lows.
“Potential re-balancing of portfolio amid political risks in regional AXJs (Thailand General Election in March, Indonesia Presidential/General Election in April, and Philippines mid-term in May) could benefit the ringgit and ringgit-denominated assets,” said the research house.