On Sunday (29 Sept), I invited financial experts Hann Liew and Sani Hamid to talk about the ringgit’s unstoppable momentum and what it means for you.

If you missed the live discussion, listen to the full replay on Spotify or Apple Podcast.

Scroll down for a QNA summary of the session.

Quick Facts:

i) The Ringgit on Friday hit its highest point since June 2021.

At RM4.1220 versus the US dollar, it has gained 12.19% since the start of the year and has blown past the year-end target of analysts, with the most optimistic forecast at RM4.20. The average predictions were at RM4.40-RM4.50.

Because of this, MIDF has revised their year-end target and expects the ringgit to hit RM4.03 by December.

ii) Momentum in the Malaysian market is expected to continue.

Currently at 1,658 points, the FBMKLCI has rallied 14.41% since January, driven by:

• Inflow of foreign funds.

• Optimistic corporate earnings outlook.

• The country’s healthy growth numbers.

MIDF targets the FBMKLCI to reach 1,750 points by December, which is a ~5% upside from the index’s current valuation.

That said, the research firm is advising caution, as geopolitical tensions (Russia-Ukraine, Middle East, etc.) could potentially reverse the market.

Q1: Are you surprised by the ringgit’s stellar performance? Where will it go at this point?

Hann: I’m not at all surprised. Huge movements like these have occurred several times in the past.

For instance, in November 2022, the dollar fell almost 11% against the local note in less than 3 months. This was coincidentally when Anwar was elected, leading many to believe that it was the main reason for the surge (but it is not).

There was a company last year (I’m not going to name shame) advertising heavily on US treasuries offering 5-6% returns. It attracted a lot of investors because at that time, the ringgit was nearing RM4.70-4.80 and confidence was at an all-time low.

This recent surge serves as a lesson to all of us to never go all-in on the dollar. If you’re investing for the long term and don’t have any experience in trading, then you should stick with what you’re familiar and avoid timing the market.

Sani: I think the ringgit’s surge can be justified by several reasons:

1. Foreign investors were previously underexposed in Malaysia are now rebalancing their portfolios.

2. Dollar weakness translating to ringgit strength.

3. Proper policy reforms (ie. wage hikes, diesel subsidy removal, etc.).

Point (2) is the main driver of the ringgit’s uptick. Global economies (primarily the US) are beginning to cut interest rates because inflation has shown signs of cooling.

Meanwhile, Bank Negara Malaysia is expected to maintain the OPR steady at 3.00% for 2024 and 2025, as Malaysia’s inflation is under control and well within the central bank’s target. The narrowing difference in interest rates will continue to provide support for the ringgit.

Therefore, I believe it’s entirely possible for the ringgit to hit RM4.00 by year-end. After all, it is only roughly 3-4% away from its current point. However, considering such a drastic surge, we should expect the ringgit to retrace at some point. It won’t be a one-way trip up.

Q2: The ringgit is up. But I don’t see prices of goods going down. Why is this the case?

Hann: This depends on what type of goods you’re talking about.

i) Locally produced goods that do not have a foreign supply chain (ie. rice, fish, and eggs) will not be impacted. Therefore, the weakening dollar has no effect on the prices of these goods.

ii) Locally produced goods that have some foreign supply chain (ie. soybeans, corn, feed for chickens and other meats) will be impacted by the weakening dollar, but this takes some time—roughly 6 to 8 weeks—to take effect.

iii) Foreign made goods or imported items will see price changes quite rapidly. The prime example is the listing price iPhone 16 Pro Max, which is RM500 cheaper compared to the older model.

That said, companies tend to readjust prices monthly or quarterly, so we may see price reductions for other imported items in the coming months.

iv) Price stickiness refers to the tendency of prices to remain constant or to adjust slowly despite changes in the cost of producing and selling the goods or services.

Very often, this happens in just one direction, where prices will rise much faster than they will fall. Some firms will try to keep prices constant as a business strategy.

Take restaurants as an example.

These businesses are unlikely to lower prices because they would have to go through the trouble of updating their entire menu.

Sani: Let’s talk about Nasi Lemak prices.

An average plate in KL costs roughly RM10-15, assuming you add a piece of fried chicken or Rendang curry.

If the cost of making Nasi Lemak goes down due to imported ingredients getting cheaper from the stronger ringgit, the business becomes more profitable, thereby attracting more people to open Nasi Lemak stalls.

This competition will give consumers more options, and when there’s a cheaper alternative (ie. a vendor that can sell the same quality Nasi Lemak but is RM2.00 cheaper), consumers will gravitate towards the more economic choice.

This is what happens in a perfectly competitive economy, and it will ultimately drive prices down.

However, if you (as a consumer) are loyal to only one Nasi Lemak vendor and are willing to pay RM2.00 extra compared to a cheaper alternative, then you cannot blame the high prices on the vendor.

It is you who are choosing the more expensive option, and therefore making things pricier for yourself.

Q3: At what point will the ringgit’s strength be more harmful than beneficial to Malaysia? Where is the “sweet spot”?

Sani: This is a tough question to answer because there is no fair value for the ringgit.

Currencies and economic conditions fluctuate from time to time, so it’s difficult to pinpoint a specific target and determine the sweet spot.

That said, Malaysia is an export country. The strengthening ringgit translates to more cost for exporters, and there is a point where it becomes much less profitable for them.

I estimate this range to be on the RM3.80 mark.

Hann: I completely agree with Sani’s take on this.

To add on, there are a few other indicators that we can focus on, such as the balance of payments and trade deficit/surplus, rather than just the ringgit’s fluctuations.

It’s not completely detrimental for exporters if the ringgit continues to strengthen, because Malaysia actually imports a lot of items (ie. parts of semiconductors) and assembles them before exporting to other countries.

Q4: How can the average consumer and investor take advantage of the strengthening ringgit? Should I invest more in US assets?

Hann: For the average consumer, it’s time to plan for a holiday trip in Western countries.

If you’re wondering when is the best time to convert to the foreign currency, don’t wait (unless you’re a trader). No one knows where the market will head in the next few weeks or months.

If you can already afford your trip or overseas tuition fees, then convert now and secure your funds.

As for investing less/more into US assets, this depends on what your portfolio requires. Ask yourself what are your investment goals? What is your time horizon? Then allocate a specific percentage for each asset and stick to it.

For example, you plan to invest 30% in the US, 40% in Malaysia, and the remaining in gold, cryptocurrencies, and other assets.

In this case, you should look to rebalance whichever asset that is overweight to whichever that is underweight.

Sani: If you’re investing long-term, you shouldn’t be too worried about currency fluctuations.

As Hann correctly mentioned, the ringgit moves up and down over the years, so it won’t really impact the capital gains of your investments.

The more important thing is to understand the stocks/assets that you’re investing in. So focus more on analyzing the correct companies and understanding their business.

Q5: How do US elections play a role in influencing the ringgit? Does it typically strengthen/weaken post-election?

Hann and Sani: From my knowledge, US elections don’t really play any role in the ringgit’s strength or weakness.

The more important factor depends on the upcoming Budget 2025 and our political and monetary stability.

If the government implements proper policies (ie. sustainable plans on removing petrol subsidies, more incentives for foreign businesses to set up shop in Malaysia, etc.), we may see the ringgit soar.

Hann Liew is a personal finance expert with over a decade of experience in the financial industry. Previously the CEO of RinggitPlus, he is qualified as a licensed financial planner (CFP) and a chartered financial analyst (CFA), and has helped tens of thousands of Malaysians on their path toward financial literacy. Hann is currently the founder of Halogen Capital, the world's first Shariah-compliant crypto fund manager that provides institutional exposure to Bitcoin, Ethereum, and more.

Mr. Sani Hamid is an economist and certified financial planner (CFA). He’s a frequent commentator in the media and has over 30 years of experience in the financial markets, having worked for companies such as S&P Ratings as a Director in the sovereign team overseeing the ratings of countries such as Indonesia, India, Malaysia, and Singapore.

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That’s all for this week’s newsletter!

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.