Hlib Amid Trump S Bullying Tactics There S Room For Us Interest Rate Cuts Ringgit To Strengthen

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WHILE the unpredictability of Trumponomics 2.0 can be a cause for concern, investors have already priced in higher long-run inflation environment as their baseline expectations though have yet to fully deliberate on the downside surprises.
Even as the market is looking at a terminal Fed Fund Rate (FFR) of 3%-4% which is higher compared to the Fed’s dot plot neutral rate of 3%, investors are still expecting one cut each for this and next year (total: -50 basis points) which will then bring the FFR to 4%.
With the US Dollar Index (DXY) seen to be gradually tapering due to lower FFR, Hong Leong Investment Bank (HLIB) Research expects the ringgit to appreciate against the greenback with its economists projecting an average of RM4.35/US$1 for 2025.
“In our view, the long-run US inflation has room to surprise on the downside coupled with the expectation of stronger ringgit,” opined market strategist Chan Jit Hoong in a strategy note.
“We foresee the likelihood for funds rotating back to emerging markets (EM) with Malaysia being in a bright spot; this is further reinforced by (i) our country’s steady growth; (ii) on-going economic reforms; (iii) robust investments; and (iv) a more stable political climate.”


Additionally, HLIB Research is of the view that a rebound in Bursa Malaysia’s foreign shareholding levels is a tailwind for the FBM KLCI given the 69% correlation between the two.
“Currently, foreign shareholding on Bursa stands at 19.4% (record low). While waiting for the EM rotation to play out, our market performance will be largely driven and supported by local liquidity from GLICs (government-linked investment companies),” observed the research house.
“As such, large cap and index-heavy weight stocks are expected to benefit either way. At present, the FBM KLCI is trading at 13.7 times P/E (price-to-earnings ratio) vs 13.2 times/22.4 times for the MSCI ASEAN/S&P 500 respectively.”
Despite Trump’s bellicose approach to trade and foreign policies generating a lot of market noises, HLIB Research expects that “investors will learn to adjust and shrug off these geopolitical risks over time”.
“That said, to better weather volatility, we look inward and anchor our investment strategy on selecting stocks that are well-geared for local business growth and exhibit defensive qualities,” justified the research house.
“Moreover, we further refine our picks by focusing on winners of stronger ringgit and potential EM rotational play.
“These coalesce nicely with our broad main existing themes of (i) disposable income boosters; (ii) tourism strength; (iii) Johor’s re-invigoration; and (iv) data centre boom.” – Focus Malaysia

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