KUALA LUMPUR; The ringgit is set to record its first annual gain in four years and its most significant appreciation since 2017, according to CGS International.
This currency reversal is one of the key factors cited by CGS International for anticipating a substantial expansion in forward earnings multiples by 2025, as Malaysia progresses into the second full year of the Madani Economic Framework and fiscal reforms under Prime Minister Anwar Ibrahim's administration.
The research house highlighted that while the precise timing of Federal Reserve rate cuts remains uncertain and will depend largely on inflation and employment data, they anticipate the Fed Funds Rate to decline by over 100 basis points between now and the end of 2025.
"Against such a backdrop (and also considering the structural debt problems in the US), we maintain that there is room for the dollar index (DXY) to correct, which, in turn, should drive further local currency appreciation.
"This is a major trend reversal following the steady appreciation of the US dollar for over a decade from around the middle of 2013 to mid-2024," it added.
They believe that, despite market sentiment following the recent U.S. presidential election, Donald Trump is likely to support U.S. interest rate cuts due to their clear impact on housing, commercial real estate, small businesses, and the federal government deficit.
"Ringgit appreciation has an impact on liquidity and fund flows, which in turn could move risk asset prices higher.
"On one hand, there is a direct influence on the overseas portfolio investment decisions of the large domestic funds operating in Malaysia (as their returns are measured in ringgit), while, on the other, it provides an added return driver to foreign investors (whose performance is mostly measured in US dollars)," it said.