Winners and Losers with Ringgit Rise

The ringgit has been gradually appreciating since Nov 2006 together with the renminbi as seen from the chart on the right. An appreciating currency has a negative effect on inflation and as such food prices since it could effectively moderate rising prices. The appreciation has of late accelerated as Central Banks raising interest rate and soaking up liquidity in the money markets in a rush to fight inflation. In a more serious and intolerable circumstances, a large and one-off revaluation (to avoid hot money speculators) of a currency is one of the way in response to rising commodities prices. The other way would be a possibility of slowdown caused by world wide recession. The Monetary of Singapore has revalued its currency last week and the big question now is whether China will do it soon? I think countries would more likely prefer its currency to appreciate rather than raising interest rate.

Below is an article on the possible winners and losers with the ringgit marching towards the psychological 1US: RM3.00 mark.

TheEdge: The ringgit is expected to continue its rise against the US dollar this year, with the possibility of hitting the RM3 to the dollar level by year-end, with beneficiaries in asset reflation play such as banking and property-related stocks, analysts said.

CLSA Asia-Pacific Markets expected the ringgit to firm up to RM3 against the dollar by year-end from RM3.15 currently, driven by a growing current account surplus, Bank Negara Malaysia’s policy of gradual currency appreciation, further dollar weakness and a strengthening renminbi. “Public Bank Bhd is our top pick among the large caps. We believe it is one of the best-run consumer banks in Asia, with loan growth twice the average of competitors while maintaining credit quality and profitability. “Among smaller banks, Alliance Financial Group is our favourite. Having recently restructured, it is likely to experience a rare combination of accelerating loan growth and falling non-performing loans,” it said.

CLSA added property companies benefiting from the ringgit rise were those supplying office space, such as Malaysian Resources Corporation Bhd, rather than the residential plays. It said the local currency’s appreciation would help companies with US dollar denominated debt and costs, such as Tenaga Nasional Bhd, while Astro All Asia Networks plc and Media Prima Bhd would benefit from lower costs for foreign programmes, which comprised 60% and 40%, respectively, of total programming costs. Meanwhile, consumer companies, such as telcos and retailers, would also be better off, with the stronger ringgit leading to improving purchasing power and increased consumption.

CLSA said main losers from the stronger ringgit included exporters, and companies with foreign denominated income. It said the affected exporters were plantation companies, although these would be offset somewhat by lower imported fertiliser costs due to the weaker dollar, adding fertiliser costs consisted up to 40% of plantation companies’ total costs, while others included MISC Bhd and Top Glove Corp Bhd.

TheEdge further adds that RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said the ringgit would likely hit the RM3 to the dollar psychological barrier this year, rising in tandem with regional currencies. He said companies with a diversified geographic focus would stand to benefit more from the ringgit rise, as demand from the non-US market would likely continue to be strong. He added while the resource-based sector, such as E&E, saw falling overseas demand, this would be compensated by lower import costs. Yeah said, however, exporters focused on the US market, would need to re-look its markets, adding the depreciating dollar was not entirely unwelcome as it could help moderate the risk of the global imbalance arising from the US’s high current account deficit.