- We were overweight Malaysian and Indonesian assets (both FX and bonds) in our Macro Outlook & Strategy dated 25-August-2017, on account of improving fundamentals and undervaluation. However, the accelerated rally in MYR gains caught many by surprise, which we attribute mainly to external tailwinds.
- External tailwinds supporting the MYR have risen, following:
- increasingly dovish discussions amongst US Fed Reserve Committee members;
- the widening impact and cost of hurricanes Harvey and Irma in the US which has worsened over the weekend; and
- Fed fund futures pricing in a materially lower probability of a rate hike by the US by end-2017.
- A crowded US political calendar in 4Q17.
- Furthermore, Malaysia's fundamentals remain healthy, and markets have been pricing in a string of positive economic data, from GDP, to exports and IP. The recent central bank statement by BNM indicated a status quo stance while the upward momentum in recent growth numbers versus dovish neighboring central banks is Ringgit-positive.
- We maintain our core forecast of 4.20 for the USDMYR in 2018 (see Ringgit Weekly report dated 21-Aug-2017), and factor in greater optimism for our 4Q17 MYR forecast to 4.10-4.15. While the MYR's fair value is probably below 4.00, this may take some time to develop.
- The mildly depreciating stance from 4Q17 into 2018 reflects the views in our Macro Outlook & Strategy dated 25-August-2017, where we remain wary of a rotation out of EM into developed market and reserve currency assets, starting with the EUR followed by the JPY, although the timing of this may be pushed further out towards end-2017 to early-2018.
*****************************************************************************************************************
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.