KUALA LUMPUR, March 31 — MIDF Research expects the appreciating ringgit trend to continue and average stronger at RM4.20 and end the year at around RM4.00 against the US dollar, supported by the upbeat domestic economy.

It said the local note is in a good position to strengthen as the domestic economy stays on upbeat momentum and as a net commodity exporter of crude petroleum, liquefied natural gas and palm oil, it stands to gain from the elevated global commodity prices and sustained trade surplus.

It said as the US Federal Reserve (Fed) indicated its intention to taper down its policy tightening, ringgit recovered since early November 2022.

"Between early November 2022 and late January 2023, ringgit appreciated by 11.9 per cent from nearly RM4.75 to RM4.24, the strongest level since April 2022,” it said in a note today.

However, there was a quick reversal which resulted in the ringgit, and other regional currencies, depreciating again until mid-March 2023; the ringgit weakened from RM4.24 in late January 2023 and hovered around RM4.50 by mid-March, as investors demanded for more dollar in anticipation for more hikes by the Fed in reaction to sticky US inflation data.

The research arm of MIDF Amanah Investment Bank Bhd also said that the recent banking sector turmoil led to a shift in market sentiment, with the Fed again expected to pivot with small hikes (and possibly to cut rates later) this year.

This brought back the weak dollar narrative and supported the ringgit and other currencies to appreciate.

With the Fed also hinting on the end of its series of rate hikes, the ringgit appreciated towards RM4.40 on the subsequent day after the March 2023 Federal Open Market Committee decision.

On the equity market, MIDF Research expected the market valuation of FBM70 to improve further supported by macro and corporate earnings growth, the end of the interest rate tightening cycle and no systemic distress in the banking sector.

Nonetheless, nagging fears over the possibility of more bank failures/distress and the risk of a US recession would limit the valuation gain. Hence, it introduced its FBM70 end-2023 target at 15,000 points.

On sectors’ outlook, MIDF Research maintained its positive call on nine sectors; namely, Automotive, Banking, Construction, Consumer, Healthcare, Media, Oil and Gas, REITs and Technology; while maintaining neutral on Plantations, Power, Property, Telecommunication and Transportation; and negative on the Gloves sector. — Bernama