This article first appeared in The Edge Financial Daily on July 12, 2017 - July 18, 2017

KUALA LUMPUR: The depletion of Malaysia’s international reserves in the past few years, coupled with weak crude oil prices that impact the ringgit’s performance, continue to be a concern among investors, according to Standard Chartered Bank Malaysia Bhd (StanChart).

“In the ranking of things, we would really like [international] reserves to be a little higher, [as] that would take away a lot of worries [among the investing fraternity].

“[But] we have seen foreign investment flows [into Malaysia] picking up and those flows, to some extent, [have] bolstered [the] reserves,” said the bank’s head of fixed income, currencies and commodities investment strategy Manpreet Singh Gill.

Though it has been two years since Bank Negara Malaysia’s international reserves fell below the US$100 billion (RM430 billion) mark, there have been positive signs of a trend reversal in the past six months. The central bank’s reserve level rose from a 13-month low of US$94.6 billion in December last year to US$98.9 billion as at June 30.

During the bank’s presentation of the “Global Market Outlook” for the second half of 2017 (2H17) yesterday, Manpreet also highlighted the bank would have had a more bullish view on the ringgit had it not been for falling commodity prices.

“I think what’s holding us back from being more bullish on the ringgit is weak commodity prices, in particular [crude] oil prices,” he said.

In its 2H17 outlook report, StanChart said it is less convinced that crude oil prices will end the year in the US$60 to US$65 per barrel range, but sees a 75% probability it will close the year higher than US$45 per barrel.

Nevertheless, Manpreet said the bank is “cautiously positive” on the ringgit. “I think what’s interesting about the ringgit is [in] two parts. The first part is the US dollar’s [strength], as Malaysia was faced with the challenge of a strengthening dollar. But with our view that the US dollar may actually soften a little, that’s actually taking away one big headwind for the ringgit

“The second part is the intrinsic ringgit factors — the ringgit is still as about as inexpensive as it has been since the Asian financial crisis, so it will take a lot of bad news to push the ringgit lower from here,” he said.

Manpreet added that he expects the ringgit to trade at rangebound levels — at about 4.2 to 4.3 against the greenback. As at press time yesterday, the ringgit was trading at 4.2975 against the US dollar.

Meanwhile, StanChart is positive on the Malaysian equity market in 2H17.

“The Malaysian equity market should do well; it’s a great dividend-yielding market delivering one of the more sustainable yields compared to the Singapore [equity] market, another yield-oriented market.

“In terms of [Asian ex-Japan markets], we feel [the market with] the highest beta, [or] where the outlook is most positive, is [South] Korean equities — where we have seen significant technical breakouts and a rise in earnings expectations — and China,” said Manpreet.

The banking group is also more positive on bonds in 2H17, compared with 1H17.

“We have increased our allocations for bonds globally, with the biggest driver being US Treasury yields because they ultimately drive government bond yields around the region.

“We are a little less worried that US Treasury yields may rise a lot, and the fact we are a little less worried means we are more comfortable in looking for opportunities in bonds, [such as] emerging-market [government] bonds,” he said.