Ringgit expected to stabilise against US dollar in second half of 2022

HSBC expects the ringgit to stabilise against the US dollar in the second half of 2022 (2H 2022), strengthening to 4.28 by the end of the year.

HSBC global private banking and wealth chief investment officer for Southeast Asia, James Cheo, said the ringgit will strengthen when global market sentiment improves.

“The beginning of the first half of this year was volatile, and we believe the ringgit will stabilise to move towards 4.28 by the end of the year when the market sentiment globally improves,” he said during the HSBC 2H 2022 Investment Outlook online press conference today.

Today, the ringgit opened at 4.39 versus the US dollar. It hit 4.40 against the US dollar on May 19, marking the lowest rate since March 2020.

Cheo said HSBC observed that equity inflows from foreign investors have continued to trickle in year-to-date, in view of Malaysia’s growth recovery and reopening for tourism.

On another note, Cheo said he expects Bank Negara Malaysia to increase the policy rate by another 50 basis points (bp), ending the year at a 2.5% overnight policy rate (OPR) after lifting its policy rate by 25bp recently.

He also said Malaysia is on a solid growth path and expects the country’s gross domestic product growth to be at 5.5% this year, attributed to good manufacturing and higher commodity prices.

Cheo said the Malaysian economy expanded by 5% year-on-year in the first quarter of 2022 to pre-pandemic levels, and that with the impact of pandemic restrictions receding, private consumption had bounced back and investment stabilised, although this led to import growth outpacing exports.

“Domestic demand should accelerate further this quarter and next, supported by a tightening labour market,” he added.

Meanwhile, HSBC global private banking chief investment officer for Asia, Fan Cheuk Wan, expects the global economic cycle to continue but at a slower rate while inflation gradually eases.

The US rate hike expectations will be moderating in 2H 2022 despite lingering energy shock and supply chain disruptions, she said.

“We forecast global GDP growth to decelerate to 3.4% in 2022 and 2.9% in 2023, down from 5.8% in 2021.

“We expect global energy shock and supply chain challenges to push up global inflation to 7.5% in 2022 before moderating to 5.1% in 2023,” Fan said.

She added that the world has faced several structural shocks and investors need to reposition their portfolios to adapt to these challenges.

“The Covid-19 crisis, Russia-Ukraine war and sustainability revolution are disrupting supply chains, labour markets, energy sources and infrastructure.

“These structural changes will require significant investments that will ultimately help boost growth, but this will also push up costs and cause inflation to become stickier than witnessed in the past decade.

“Therefore, we expect the investment outlook for risk assets to gradually improve in 2H 2022 with the support of a soft landing for the global economy and easing stagflation fears,” she added.