KUALA LUMPUR (Sept 26): The Malaysian ringgit may be heading towards its strongest level in nearly four years thanks to the narrowing interest rate and weakening greenback, said MIDF Amanah Investment Bank.

By the end of 2024, the ringgit may close at 4.03 against the US dollar, its strongest since February 2021, MIDF said in a strategy note. History shows that a stronger ringgit would lead to an influx of foreign funds that also boost stocks on Bursa Malaysia, it noted.

“Going forward, we expect that the ringgit will continue to appreciate against the US dollar” amid falling US interest rates, said MIDF. “This will lead to further foreign fund net inflows which will provide support” for the stock market, it said.

The ringgit — Asia’s best performing currency so far this year — has gained more than 11% amid better-than-expected economic growth in the April-June quarter and was trading at around 4.14 on Thursday.  

Bank Negara Malaysia is widely expected to keep interest rates unchanged in the near term. The last time the central bank moved the overnight policy rate was in May 2023 when it was raised by 25 basis points.

The FBM KLCI, meanwhile, has climbed nearly 15% year-to-date on the back of foreign purchases. Institutional investors, particularly foreign fund managers, have also been buying Malaysian stocks, and close to RM5 billion have flowed into Malaysian equities in the last three months alone.

The positive momentum of the stock market is expected to continue into the fourth quarter, MIDF said and also cited healthy corporate earnings outlook, supported by undemanding valuations. The research house predicts the KLCI will close the year at 1,750 for a potential gain of 5% from 1,667 currently.

For strategy, MIDF likes stocks in the banking, real estate investment trusts, and consumer sectors for the fourth quarter.  

“We are favouring sectors that provide good dividend yields and potential laggards,” the research house said. “As rates soften, we expect investors may be looking for assets that will provide them with similar or higher yields.”

MIDF is also positive on construction, healthcare, property, and energy but neutral on other sectors. The research house has no sectors on negative rating.