Who are winners and losers of a stronger ringgit?

The strengthening ringgit has not gone unnoticed as investors snapped up emerging market assets across Asia in anticipation that regional economies would exhibit strong economic growth, especially relative to Europe and the US.

The Malaysian stockmarket  benchmark reached a fresh two-year high as regional currencies and equities gained amid a weakening US dollar. The FBM KLCI eked out a marginal 0.2 point gain to close at 1,363.83.

As at 4.40pm yesterday, the ringgit was trading at 3.1590 versus the US dollar, ahead of the release of Malaysia’s external trade numbers. On Monday, the ringgit had rallied to 3.1514 versus the US dollar, the strongest in 27 months since May 8, 2008.

The ringgit may strengthen further if portfolio inflows to the region increase, although much of it could be “hot money”, which are short-term and speculative in nature.

This raises an important question to investors: which sectors or companies are beneficiaries and losers of a stronger ringgit?

According to analysts, beneficiaries of a firmer ringgit are import-based industries or those with large US dollar denominated costs or borrowings. These include the automotive, consumer and airline industries.

Conversely, the losers are primarily export-oriented industries, who will earn less in ringgit terms for foreign currency denominated sales. These include the latex glove makers, although these companies can, to some extent, pass down their costs, as Malaysian glove makers control over 60% of the global market.

Other notable losers among exporters include the semiconductor sector, as well as the oil and gas (O&G) entities which have contracts denominated in US dollars. For the O&G players, it is mitigated by the fact that a falling US dollar boosts prices of crude oil, which encourages further O&G exploration activities.

The impact on the plantations is probably neutral. Crude palm oil prices are denominated in ringgit, and a stronger ringgit will make it less competitive versus other edible oils, such as soyoil.

However, a weaker US dollar also tends to boost commodity prices in general, including other competing edible oils. Moreover, plantation companies are expected to benefit from a reduction in fertiliser costs, which are denominated  in US dollars.

Local companies worth noting include power players Tenaga Nasional Bhd and  YTL Power International Bhd.

It is not unusual for Tenaga to be among the top in the list of winners due to its sizeable foreign debt. YTL Power is deemed to be less affected  because although it has US dollar loans, it also has revenue denominated in pound sterling.

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

The ringgit is now trading at its highest levels since the de-pegging of the local currency in 2005.

Bank Negara had pegged the ringgit at 3.80 against the US dollar on Sept 2, 1998 during the Asian financial crisis. The fixed exchange rate policy was scrapped on July 21, 2005, and replaced by a managed-float system which allows the central bank to monitor the ringgit’s value against a basket of currencies.

The central bank’s move to the new currency regime was an instant response then to China’s decision on the same day to abandon the yuan’s decade-long peg to the US dollar to make way for a new system which is based on the yuan’s value within a basket of global currencies.


This article appeared in The Edge Financial Daily, August 4, 2010.