Maybank IB estimates ringgit undervalued by 6% to 7%

PETALING JAYA: Maybank Investment Bank Bhd’s (Maybank IB) behavioural exchange rate model estimates that the ringgit is undervalued by 6% to 7%.

Foreign exchange research head Saktiandi Supaat said the fair value of the ringgit is projected to be in the range of 4.10 to 4.30 in the medium to long term.

“We think that the undervaluation of ringgit and overvaluation of the US dollar could reverse and that could come slowly in 2024,” he said at the Maybank IB 2024 Market Outlook media briefing recently.

He said the ringgit has suffered the heaviest loss among regional currencies from the period from early 2023 to October, and it has not recouped much of its losses.

“We suggest that any positive factors or variables that drive the ringgit or contribute to its recovery from external factors could potentially lead to a swing in the ringgit, as observed late last year when the dollar softened,“ he added.

An angle he highlighted was that corporates and individuals continue to hold a high percentage of their cash in foreign currencies, either in dollars or others.

“We see a very strong correlation which suggests there’s a bit of currency convertibility. I think a bit of holding of foreign currencies instead of converting to the ringgit story here as well,” said Saktiandi.

Another factor is the slow pace of investment as indicated by both foreign direct investment (FDI) and domestic direct investment (DDI).

“We expect FDI and DDI to continue to support the ringgit in 2024. We expect that to happen in 2024,” he said.

He added that bond flows have been consistently positive for the majority of 2023.

“Malaysian government bonds, in some sense, have played a significant role in providing support for the ringgit,” he said.

Meanwhile, equity flows have been quite weak amid the weak foreign appetite for Malaysian stocks in multi-year development.

“So, that has been a sort of soft spot or weak link in terms of portfolio flows in 2023, and we expect that to swing as well in 2024,” said Saktiandi.

He added that semiconductor recovery could also provide a boost to ringgit as Malaysia has a significant semiconductor sector.

“The sales could rebound in 2024 by close to 12% which could boost Malaysia’s external position as well as a production sort of house for semicon,” he said.

“... and if China’s recovery starts picking up towards the second half of the year that could be positive for the ringgit as well,” he added.

Maybank IB expects the ringgit to hover around the 4.60 to 4.70 range until the first quarter of this year and then slowly ease off towards 4.60, 4.50 and the year close to the 4.30 to 4.40 range.