KUALA LUMPUR: Malaysian ringgit, which has gained 3.1 percent against the U.S. dollar year-to-date, is expected to weaken by an average of 7.3 percent post-election this year, said a Malaysian research house Monday.
TA Securities Research said in a report that it expects a knee-jerk reaction on the ringgit post-election, as it tends to weaken for at least six months after the country’s election.
“This is prevalent in the 1990, 1995, 2008 and 2013 elections and was independent on whether the current ruling coalition, Barisan Nasional, gained traction in the percentage of seats,” it said.
It opined that the weakening of ringgit post-election could be due to foreign portfolio investors repatriating their income and profits.
Based on the research house’s study, the ringgit has weakened by 3.1 percent in nine months after the 1990’s general elections, followed by 4.1 percent drop in 1995’s general elections, 14.8 percent plunge in 2008’s general elections as well as 7.5 percent fall after the 2013’s general elections.
“If this trend prevails, it could indicate selling pressure in the second half of this year. We estimate that the Ringgit may weaken by an average of 7.3 percent post-election this year,” it said.
Year-to-date, the ringgit has gained 3.14 percent to 3.9205 against the U.S. dollar. Due to the diminishing sentiment following surging U.S. Treasury yields, the ringgit has shed some gains recently, falling about 1.4 percent against the U.S. dollar in April.
Fundamentally, TA believed the currency will continue to trade fairly against the U.S. dollars for the year backed by a combination of factors, including Malaysia’s healthy reserves level.
The stellar economic growth of the country and improving crude oil price, also augur well to the ringgit.
As of April 13, Malaysian Central Bank’s international reserves stood at 110 billion U.S. dollars, the highest since end of February 2015. The reserves position is equivalent to 7.7 months of retained imports and 1.1 times of short-term external debt.
