Apart from Malaysia, Credit Agricole also likes the South Korean won and the Taiwanese dollar, but is recommending its clients move away from the Singapore dollar, which has appreciated against most of the regional currencies.
Davis Hall, global head of foreign exchange and precious metals advisory, believes the Malaysian currency is in a sweet spot, bolstered by government measures to boost the country’s growth prospects and by expectations of an interest rate hike by the end of the year.
The private bank has pegged Malaysia’s economic growth at 5.7% and 5.4% for 2014 and 2015, respectively.
In the second quarter, the country had a 6.4% GDP expansion.
“There has been much more positive news in Asia,” Hall said. “Malaysia on a relative basis has not been on our radar for quite a long time.”
With the expected rise in US interest rates and bond yields, Hall believes the dollar is going to gradually appreciate and the strengthening trend will continue for the next two years.
“When clients ask, if I do not want US dollars, then are there any other currencies that will do better than the dollar? The answer is yes, and they are right here in Asia.”
He also sees currency growth in growth South Korea and Taiwan, but is negative on the Singapore dollar.
“The Singapore dollar has gone up over all the regional currencies especially against the Malaysian ringgit and the Indian rupee, for no specific positive reason other than current account fundamentals. Growth will lag compared to other parts of the region. We are trying to get our private bank clients to avoid falling in love with the Singapore dollar.”
As US growth eventually stops underperforming growth in emerging markets, and interest rates start normalising, it would be difficult for currencies of countries with current account deficits such as India and Indonesia to outperform.
Moreover, the Indian rupee, Indonesian rupiah and the Singapore dollar are most vulnerable to any spike in oil prices, Hall said.
On overall currency strategy he said: “We think a basket of sterling and US dollars is going to outperform other European currencies, even the Canadian dollar and also possibly the Aussie dollar, which is losing the upward momentum and has always been a favourite of our private banking clients.”
