13-08-2008: Exporters, plantation companies benefit from ringgit slide

by Ellina Badri

KUALA LUMPUR: Exporters and plantation companies are expected to benefit from the ringgit’s recent slide against the US dollar as it cushions the margin squeeze felt from inflation and falling commodities’ prices, analysts said.

The local currency continued its downward trend for an eighth straight day yesterday, hitting the year’s low at 3.3350 to the US dollar. It closed at 3.3250 to the greenback as at 5pm, against 3.3160 on Monday.

The ringgit’s weak performance has largely been attributed to the US dollar’s gains against major currencies. Analysts also expected slower exports to result in further declines in the ringgit.

Speaking to The Edge Financial Daily, Aseambankers Malaysia Bhd head of research, Vincent Khoo, said the weakened ringgit would be favourable towards plantation companies, such as Sime Darby Bhd, which had seen a downtrend in crude palm oil prices.

Other beneficiaries of the ringgit decline included companies with exposure overseas, especially those in the oil and gas sector, Khoo said. “A counter that comes to mind is KNM Group Bhd which has businesses contracted in US dollars,” he said.

He added the current environment could warrant a review of the research house’s outlook for the ringgit which was originally expected to significantly appreciate against the US dollar.

Jupiter Securities Sdn Bhd head of research, Pong Teng Siew, also said the fall of the ringgit would be an advantage to exporters and plantation companies, although the benefits would not be very clear-cut due to the current inflation spell.

“At a basic level, exporters would benefit from the ringgit decline but not by very much as margins are already thin due to inflation,” Pong said. “Even if goods (sold) are cheaper, overseas demand is lower as a result of a slowdown in the European Union, China, and the US. So, the weaker ringgit may not help improve volume significantly.”

He said the setback in the local currency would, however, paint a slightly better picture for the palm oil sector as it helped to stabilise the declining price of the commodity.

On the outlook for the ringgit, Pong said its decline could last for the most of the current quarter, with its value expected to weaken further to around 3.40 to the US dollar.

Sime Darby and KNM were among the most active counters traded on the KLCI yesterday. Sime Darby closed five sen higher at RM6.95 with 6.16 million shares traded, while KNM closed unchanged at RM1.78, with 8.45 million shares done.

Meanwhile, bonds gained, with the yield on the 4.24% 10-year Malaysian government securities, maturing in February 2018, falling 14 basis points to 4.7%. The gain in the 10-year notes saw an end to five days of losses, with yields falling to the lowest in a week.

According to Bloomberg, the ringgit dropped every day this month and its 2.3% slide against the greenback is second only to the Singapore dollar’s among Asia’s 10 most traded currencies outside Japan.

“Recent data signal more downside risk to the currency,” said Joanna Tan, a Singapore-based economist at Forecast Pte. “Malaysian exporters are susceptible to headwinds and won’t escape the erosion in global demand.”