KUALA LUMPUR (Sept 18): Malaysian stocks and ringgit could get a boost from falling US interest rates as the US Federal Reserve kicks off its easing cycle, analysts said.
Projections from the Fed indicate another two more 50-basis-point reductions by the end of 2025, which could spur foreign inflow into Malaysian equities and boost their relative attractiveness, Apex Securities said in a note following a quarter-point rate cut overnight.
“These inflows should also underpin [the] ringgit's strength, aided by narrowing yield differentials and firmer regional risk sentiment,” the research house said. “We see continued interest in high-yielding sectors” such as utilities, telecom, and real estate investment trusts, it said.
Investors tend to shift their portfolios in an environment of falling US interest rates to other markets, in search of higher returns. The shift away from US assets also weakens the US dollar, helping emerging market currencies such as the ringgit.
Lower US interest rates also help to inject liquidity in the economy, while reducing borrowing costs for companies with loans denominated in greenback.
Bank Negara Malaysia, meanwhile, is unlikely to follow the footsteps of the Fed, with the consensus predicting that the central bank will keep the overnight policy rate steady in the remaining months of 2025 following a pre-emptive cut in July.
The current monetary stance is appropriate, governor Datuk Seri Abdul Rasheed Ghaffour said after holding the key rate steady earlier this month.
“Investors should position for a lower US rate environment, a softer dollar, and selective opportunities across emerging markets, with Malaysia among the relative beneficiaries,” said Mohd Sedek Jantan, investment strategist and country economist at IPP Wealth Managers.
For Malaysia, the dovish pivot by the Fed reinforces a “constructive” outlook for the ringgit, which could trade in the 4.10-4.15 range by year-end, with narrowing rate differentials, resilient domestic growth, and fiscal consolidation anchoring investor confidence, he added.