The ringgit’s gain of five percent against the US dollar seen in the first quarter of this year has been wiped out in the second quarter.
The timing couldn’t have been worse since it is during this time that the government of Malaysia changed following the stunning election win by the Pakatan Harapan coalition, led by 93-year-old Tun Dr. Mahathir Mohamad.
Just what can we make of this roller coaster ride of the ringgit?
Jameel Ahmad, the Global Head Currency, Strategy & Market Research of ForexTime or FXTM has been a keen commentator of the Malaysian market and the ringgit. He says the situation is really not all that bad.
I personally do not think that Bank Negara will take any drastic measures anytime soon. This is, after all a rather stable and predictable central bank
"Most of the changes in the country has been positive," Jameel says. "Markets behaved negatively over recent months since the elections. But it is not because of the election itself," he clarifies.
"There has been some huge concerns in the global market about a potential trade war between the two largest economies in the world, which is the United States and China," he says.
"This has had a huge impact on market sentiment. We've seen a lot of risk appetite wiped away. Which means investors are less interested in taking on risk; which means they are less attracted in investing in the stock market. So, emerging markets and its assets, such as the emerging markets currencies, which includes the ringgit has taken or will take a blow," he explains.
Indeed, if matched against the US dollar, some key emerging markets currencies have taken a blow. But no other currency is being watched like the Chinese Yuan. The People’s Bank of China (PBOC) fixed the currency past the 6.7 per dollar for the first time in the past twelve months. The PBOC strengthened the Yuan’s fixing to 6.7593 and offshore Yuan erased its gain yet again this week.
Can investors expect Bank Negara Malaysia to take similar, if not any, measures like the Chinese in arresting the ringgit slide against the US dollar? Jameel doesn’t think so.
"I personally do not think that Bank Negara will take any drastic measures anytime soon. This is, after all a rather stable and predictable central bank,” he remarks.
“So this is what we've seen in the couple of weeks and months that despite the ringgit having a positive first quarter of the year, it was up four or five percent against the US Dollar at one stage, now the ringgit has surrendered its gain," Jameel notes.
If the situation persists, what options do investors have when it comes to managing the volatility when it comes to the ringgit and?
I personally do not think that Bank Negara will take any drastic measures anytime soon. This is, after all a rather stable and predictable central bank
Jameel says there’s plenty of opportunities that lie ahead and that optimism should reign over any pessimistic outlook when it comes to the market expectations in the near term.
"So on that headline, it doesn't look so positive. However, during this time of volatility, Malaysia has outperformed some of its original peers."
"It has outperformed Indonesia, South Korea, and Thailand. Year-to-date, Malaysia is the second best performer amongst Asian currencies and best performing in emerging markets."
"In general, emerging markets currencies have been whacked from this trade war between the US and China. There's been real pain in emerging markets currencies and the ringgit has been caught up in this," he says.
