Wednesday, June 20, 2007

Ringgit & The Markets

Having highlighted the solid reserves backing the ringgit, it now looks to be building an even stronger base to try for 3.30 before the year is over. The reasoning behind is fundamentals driven and also on the strategy surrounding the renminbi. To placate the Americans, Beijing has widened the band with room for more upside. The ringgit has been only allowed to track the gains of renminbi and not surpass it, or so it seems by Bank Negara. Though most of the Malaysian public are still unconvinced, the ringgit is probably the second strongest currency in terms of under-valuation in Asia after the renminbi. Zeti is only taking an appropriate strategy to keep in step with the renminbi. Why do i say a wave is coming, its because a wave is coming for the renminbi with higher rates in the works and a wider band for China.

The other reason why I say a wave is building is to follow the benchmark yields on the 10-year government bond. Despite the slight weakness when US bond yields went above 5.0% last week, the Malaysian bond yields have actually come down a full percentage point in just the last 8 months, and that's despite the wooblies in China back in March. Hence long term FDIs and even investments in stocks have grew at a solid pace into ringgit denominated assets. Bond yields is now the lowest since 2001 and for very different reasons, I might add. A strong ringgit outlook bodes well for the local stock market, make no bones about it.

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