Ringgit strengthens: Who wins & loses?

The ringgit strengthened to a near 13-year high yesterday, buoyed by Bank Negara’s foreign exchange liberalisation moves. With the strengthening ringgit, what is the impact on the corporate sector? Who wins and who loses?

The beneficiaries of a firmer ringgit include the automotive, consumer and airline industries, and those that have large import content or foreign currency denominated loans.

Among automotive firms, UMW Holdings Bhd and Tan Chong Motor Holdings Bhd are beneficiaries as their costs are primarily in US dollar terms as opposed to Proton Holdings Bhd and MBM Resources Bhd, which pay in yen.

Losers are primarily exporters, whose export-competitiveness will be eroded.

Companies which have large amount of sales are denominated in foreign currencies will earn less in translation. Some examples include the rubber glove makers, hard disk drive (HDD) component manufacturers, semiconductor players and oil and gas entities whose contracts are mostly denominated in US dollars.

Stationary player Pelikan International derives the bulk of its income from Europe and its revenues are in euros. HDD component players like Notion VTec and Dufu Technology have already shown weaker results due to forex issues in their latest quarterly results. 

The ringgit is one of the top performing currencies in the region this year. Photo by Kenny Yap

While there are many winners and losers from the ringgit’s strengthening, one clear winner are the foreign portfolio funds which took a correct bet on the ringgit’s appreciation in the last few months.

Foreign ownership of Malaysian Government Securities (MGS) has more than doubled to RM59 billion as at June 2010 from RM28.3 billion, with foreign shareholding rising to 24% from 13% a year earlier.

That has made the ringgit one of the top performing currencies in the region this year, up over 8% year-to-date. These funds obviously made a good bet that has paid off handsomely.

But it is worth noting that these are largely portfolio funds or “hot money” that seek better returns. Unlike foreign direct investments, which is falling, their time horizon is short and profit is the only motivator.

Once they have made their money, they will leave to find other opportunities. More “hot money” will likely to find its way into Asian financial markets and assets, due to the region’s brighter growth prospects versus Europe and the US.

If that happens, central banks in the region may have to start thinking about putting in some curbs in the near future, before the inflow of more “hot money” significantly distort financial markets and asset prices.


This article appeared in The Edge Financial Daily, August 20, 2010.