Malaysia’s ringgit gains, bonds attract investors

Malaysia’s ringgit has emerged as one of the strongest performers among Asian currencies this month, providing investors with an added incentive to consider purchasing the nation’s bonds, Bloomberg reported.

The currency has shown a notable 0.5 per cent strengthening in recent weeks, following the central bank’s encouragement for state-linked firms to repatriate and convert their overseas earnings.

This increase in value is complemented by factors such as improving exports and a stable inflation rate, further enhancing the appeal of Malaysian bonds.

Peerampa Janjumratsang, a fund manager specialising in Asia fixed income at M&G Investments in Singapore, underscores the importance of Malaysian government bonds in their investment strategy. They maintain a moderately overweight position, driven by the potential for the ringgit to outperform, supported by robust consumption and stable inflation.

Malaysia’s local-currency sovereign bonds have outperformed dollar-based investments recently, returning 1.1 per cent compared to a 0.2 per cent gain for emerging Asian debt overall.

The recent resilience of the ringgit can be attributed to government and central bank efforts to bolster it, rebounding from a 26-year low set the previous month.

Central bank governor Abdul Rasheed Ghaffour emphasised the currency’s undervaluation, expressing confidence in its strength given the nation’s positive economic outlook.

This recent appreciation of the ringgit encourages exporters and local investors to favour local currency deposits and investments over the US dollar, mitigating concerns about further depreciation.

Continued foreign bond inflows are expected to provide support for the ringgit, as evidenced by net purchases of Malaysia’s conventional government bonds by overseas investors in February, contrasting with outflows in Thailand and Indonesia.

Despite a mild pullback in exports in February, January saw a significant 8.7 per cent increase year on year (YoY), ending a ten-month streak of declines.

Winson Phoon, head of fixed-income research at Maybank Securities Pte in Singapore, advises maintaining tactically FX-unhedged Malaysian bond positions, given the ringgit’s tendency to outperform regional currencies when regulatory support intensifies after prolonged weakness.

As of Monday, the ringgit stood at 4.7210 per dollar, strengthening from 4.75 on March 4 when Phoon made his trade recommendation.