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KUALA LUMPUR (Jan 28): The ringgit’s recent appreciation will broadly benefit Corporate Malaysia, which is driven by domestic demand, but exporters will feel the squeeze on margins, according to Hong Leong Investment Bank (HLIB) Bhd.
In a research note on Wednesday, HLIB pointed out that many companies stand to gain from a stronger ringgit, as lower import and procurement costs could help support margins.
These sectors include aviation, automotive, cement, construction, consumer, media, renewable energy, real estate and telecommunications.
On the other hand, HLIB said export-oriented sectors could be negatively affected by the ringgit’s appreciation, given their largely US dollar-denominated revenue and lack of offsetting US dollar costs. These include sectors such as gloves, technology, electronics manufacturing services, upstream oil and gas, petrochemicals, and metal producers.
The ringgit has emerged as one of the strongest performing regional currencies against the US dollar, appreciating 12.8% since the start of last year, outperforming the broader Asia Dollar Index’s 3.5% gain. The local currency is now at its strongest level since 2018.
HLIB maintained its ringgit-US dollar exchange rate projection at an average of 4.05 and a year-end level of 4.00 for 2026, it said near-term tailwinds could continue to support the ringgit.
The research house expects the appreciation to be underpinned by a narrowing interest rate differential between the US and Malaysia.
It forecasts the US Federal Reserve (Fed) to cut the federal funds rate by 50 basis points this year, more than the Fed’s own projection of a 25-basis-point reduction, while Bank Negara Malaysia is expected to keep the overnight policy rate (OPR) unchanged.
“Though not our base case at this juncture, we feel that an eventual upward normalisation in the OPR can’t be ruled out entirely, considering Malaysia’s stronger-than-expected GDP [gross domestic product] growth,” said the research house.
A stronger ringgit could also weigh on margins where cost pass-through mechanisms are limited, while in the plantation sector, lower fertiliser costs may be offset by weaker price competitiveness for crude palm oil, said HLIB.
On the broader market, HLIB said the FBM KLCI has historically performed well during periods of ringgit strength. It maintained its KLCI target at 1,790, based on a 15.4 times price-to-earnings multiple for 2026. It also added AirAsia X Bhd (KL:AAX) to its list of top picks.