KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Bhd believes that Malaysia's neutral geopolitical stance places it in a stronger position to manage potential external policy shifts that may arise in the United States (US) after its Nov 5 elections.
The US presidential election will see a contest between Kamala Harris and Donald Trump for the top office.
In a research note today, HLIB noted that a Trump victory would likely bring greater economic fluidity and market volatility, given his confrontational and "shoot from the hip" approach.
"This is not necessarily a bad thing" the report said, "Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz has suggested that a second Trump presidency could benefit Malaysia through trade and foreign direct investment diversions if Trump escalates the trade war with China."
Conversely, a Harris win would likely signal continuity with the policies of her predecessor, offering more predictable conditions, the bank added.
In the near term, HLIB reiterated its expectation that the US Federal Reserve (Fed) will implement three consecutive -25 basis point rate cuts at the remaining Federal Open Market Committee meetings this year, in response to moderating inflation and a cooling labour market.
"This will narrow the Fed Funds Rate-Overnight Policy Rate (FFR-OPR) spread, which augur well for the ringgit.
"We maintain our end-2024 US dollar-ringgit target at 4.30 (average: 4.60), with potential for further appreciation," it said.
Regarding Bursa Malaysia, the narrowing FFR-OPR spread is expected to boost the benchmark index, given the negative correlation of approximately 50 per cent between the two, HLIB noted, while maintaining its end-2024 FTSE Bursa Malaysia KLCI (FBM KLCI) target at 1,720.
However, the bank warned that external volatility could rise as the US presidential election nears.
Additionally, HLIB highlighted that a stronger ringgit has historically supported the FBM KLCI, which tends to perform better when the local currency appreciates.