The ringgit hit a 6-month high against the dollar on Wednesday.

At RM4.6610, it has gained 2.91% since its 26-year low of RM4.80 in February, and analysts are expecting this strength to continue.

Specifically, the chief economist of Bank Muamalat, Dr Mohd Afzanizam Abdul Rashid, is confident that the local note will rise to RM4.50 per dollar by year end.

Over to the Malaysian market, the FBMKLCI has rallied to a 3-year high, closing at 1,637 points on Friday.

It is up 12.72% since January, outperforming major markets such as Singapore, South Korea, and Thailand.

Why are we seeing such a strong comeback?

i) The dollar is weakening.

The DXY, a comparison of USD versus 6 major currencies such as the Yen, Euro, and Pound, has fallen by 1.43% since the start of July.

The dollar’s weakness is driven by expectations of rate cuts by the Federal Reserve.

As of 19 July, data from CMEGroup shows that markets are 94% confident the Fed will reduce interest rates by 0.25% in September.

Interest rate cuts are bad for a currency’s strength.

They reduce the yield on bonds and fixed deposits, making it less attractive for investors to save, which in turn decreases the demand for the currency.

ii) Positive Growth Numbers for Malaysia

On Friday (19 July), advance estimates show that Malaysia’s GDP expanded by 5.8% during the second quarter, supported by strong domestic and export-driven factors.

Meanwhile, our wholesale and retail trade* increased by 7.1% y-o-y, registering a monthly sales value of RM147.9 billion in May 2024.

The positive numbers could be partially attributed to EPF Account 3 withdrawals, as a total of RM6.98 billion has been withdrawn since its launch in May.

*Retail trade involves selling products directly to customers, while wholesale trade involves selling products in bulk to other businesses or retail stores.

iii) JP Morgan Upgrades Malaysia’s Rating.

After more than five years, JP Morgan has upgraded Malaysia’s rating from underweight to neutral, citing policy reforms, data centre investments, and infrastructure build-up.

In an interview with CNBC on Wednesday (10 July), Rajiv Batra, the head of JP Morgan Asia Pacific, said that Malaysia posted an impressive 4.2% growth in GDP for Q1 2024.

"…Earnings growth almost tracking a 10-11 percent mark was an upside surprise…hence we upgraded our rating to neutral,” he said.

Rajiv also applauded the recent removal of diesel subsidies, stating that it is a bold measure for Malaysia to move in the right direction.

Combined with the positive numbers in (ii), foreign participation in the local stock market rose steadily, which could explain the stellar performance in the FBMKLCI and the ringgit.

iv) The Ringgit itself is also strengthening.

Comparisons versus other major currencies show that the ringgit is on an uptrend since February.

This is due to the three factors covered above.

So will this uptrend continue?

Barring any unforeseen events, analysts are expecting the ringgit to strengthen to RM4.50 by the end of the year, with some estimates going as high as RM4.20.

Meanwhile, research firms (Hong Leong Bank Research, Kenanga Investment, and Maybank Investment Bank) have raised their year-end targets for the FBMKLCI to 1,700-1,750 points .

This is an additional 7-8% upside from its current position, which is not impossible to achieve considering that it has strengthened by over 12% since January.

What role does Trump play here?

In case you missed the news, a gunman attempted to assassinate former US president Trump on Saturday (13 July).

It was a near miss, with the bullet piercing through his right ear.

Right after the shooting, Trump’s odds of winning the presidency jumped 10 points to 70%, while Biden’s odds fell to just 17%.

Should the probabilities stay the same until the election in November, we may have to prepare ourselves for another 4 years of Trump’s presidency.

Trump is a supporter of low interest rates, less regulation, and more tax cuts.

His election will benefit corporations linked to the Trump trade, namely:

• Banks

• Energy firms

• Private prisons

• Health insurers

• Credit-card companies.

Trump is also a Bitcoin advocate.

In an event in Washington last month, Trump said that he will defend cryptocurrencies and “support the right to self custody.”

"We want all the remaining Bitcoin to be MADE IN THE USA," he said on his Truth Social platform recently, indicating that he would like to see more Bitcoin mining by US firms.

Trump is scheduled to speak at Bitcoin 2024 in Nashville, Tennessee, on July 27, which will be a pivotal moment for crypto.

Renewable energy stocks will suffer.

This is because the former president is not really a fan of “going green.”

In 2020, the US became the first nation to formally withdraw from the Paris climate agreement, courtesy to Trump.

Learn more about Trump’s impacts and the current state of the markets by listening to our recent discussion with financial experts Hann and Sani:

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Disclaimer: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice.